The Role of Accounting in Society with the View of Investors, Capitalism, Profitability of Firms - Essay Example

THE ROLE OF ACCOUNTING IN THE SOCIETY Student’s Name Code + Course Name Professor’s Name University Name City, State Date Executive Summary Accounting is a profession that has been pursued and practised by many for a long time. Every individual who operates a business does book keeping by keeping records of transactions. Recently, the business environment has experienced massive changes and in turn, the transactions are getting more complex. The traditional accounting principles have been constantly reviewed to accommodate accounting for new concepts such as intellectual property rights. This essay examines the role of accounting in society with the view of investors, capitalism, profitability of firms and gender roles. It points out the role of accounting in bringing social change. Accounting is a profession that involves the collection, analysis, evaluation and dissemination of financial information. The role played by accounting in the society cannot be undermined. Accountancy has evolved with the traditional standard principles, changing due to the complexities in the business transactions. Accounting is more of an art and craft subject rather than a science, meaning that it has little theoretical base. Due to this fact, there are loopholes that have emerged whenever traditional accounting principles have to be reviewed to embrace the upcoming concepts such as intellectual property rights. There have been unethical practices among accountants and financial managers, where funds are lost in fraudulent ways and false accounting (McWatters & Lemarchand 2013). Many people have lost funds in fraud cases that they have never recovered. Accountants, who are members of the society, do accounting for the society. It is in this light that that this paper examines the following statement: problems in accounting are potentially reflections of problems in and of society and accordingly that, the latter should be critically analysed. Thus if a major problem in accounting is identified, say as its overwhelming orientation to investors, then a critical analysis would suggest that this problem is a reflection of society’s orientation and to change accounting practices and requires both social awareness, like identification of alternative ‘accounts’ and the roles of accounting in society, and ultimately social change. Accounting plays a crucial role in safeguarding investor wealth. Whenever there are cases of fraud, it is the investors that lose money. Since accounting is the profession tasked with book keeping and monitoring of cash flow, it has a huge role to play for investors. Accounting is a fundamental need for every individual who is involved invests resources in business operations or deals with the exchange of goods and services. From a person who trades in general merchandise to the top government bodies, accounting knowledge is paramount. It is very important to the society that even in even in a very small business, people use pens and papers to keep records of goods sold and the transaction that have taken place. In large organizations, management installs accounting systems and individuals with expertise knowledge in the accounting field to run them. For a business to be successful and realize growth, the proprietor should have good accounting knowledge and put it into good practice. Accounting is a foundation of business, whose mainstay is usually making profits. It keeps track of the way a business has grown by giving full analysis of the figures. Accounting helps to give a forecast on how the business should run in the future. Based on the work of accountants, organizations are able to run profitably and venture into fortunes of the future. Every day, each individual in a business does book keeping by recording the transactions performed. All these constitute the various books of accounting. To realize profitability, not only are monetary figures examined, but also other aspects such as total assets, including their appreciation and depreciation, liabilities and business goodwill. All of them can only be quantified using accounting procedures. The business world mainly thrives in capitalism whose tenets emphasize on entrepreneurship. Each time there is development or expansion of a business, the transactions done increase, which probably increase the complexities of accounting procedures for the business. In a society, the need for good, qualified accountants exceeds the available accountants in the field. As the economies of countries grow the complexity of businesses, and the accounting practices increases progressively. There is a greater need for control in business by the capitalist owners. Control is dependent on proper planning, organization and management. The accountants, who take up these roles, advise the management of organizations by giving factual analyses of the performance and the way forward by use of scientific methods (McWatters & Lemarchand 2013). Companies have increasingly embraced expansion programs. Most of the offices, departments, and plants are located in different parts of the country, far apart from each other. This means that each office and department require book keepers who are qualified and competent. Many people at the management levels are either accountants by profession or have the basic accounting knowledge, meaning that accounting is the foundation for sound business practices, good financial management, and understanding of the best market trends. Accounting transcends gender roles in the society. Both men and women have continued to build careers as accountants such that there are only two types of accountants in the accounting field, public and private accountants. They take up different roles in business enterprises. The government owned agenesis such as universities, and parastatals prefer to employ public accountants. They offer professional services to the public at a fee. Large organizations employ public accounting services in the audit and taxation departments (Salter 2013). Non-profit making organization opt for private accountants to deal with financial management. In the manufacturing industries, accountants are needed to give an analysis of work in progress, raw materials, and the finished products. Accountants may specialize in a single field such as auditing, taxation, finance, actuarial science or procurement. They may narrow down at the different departmental levels to deal with a specific branch of logistics, public utilities or production. Accounting is a subject whose concern is the collection of information. It provides analysis and communication to the necessary parties namely shareholders, government, the public or donors. Individuals in the society stay together by establishing rapport and relationships amongst themselves. The society has several spheres of life namely economic, political, environmental, and social, all of which require accounting from time to time. To have an efficient and functional society, the above spheres need to communicate effectively. Accountants enhance communication by disseminating information, which is in turn used to make informed decisions on capital investments, to plan and organize for optimal use of scarce economic resources. Accounting information affects every member of a particular society given that it is the measure of performance of an organization. For a company to be dissolved, accounting information and profits are used to justify a course of action. The government relies on accounting to collect revenue in the form of taxes from the organizations. Taxes affect the price of commodities, employment patterns, and the levels of economic development. Accounting as a subject is considered an art because people use it to meet their needs. It is a practice that has been mastered by many people in the society, with few principles to be followed and little theoretical foundation. Accounting acts as a custodial service for the society. When the transactions are recorded, the information acts as a memory for the business proprietors. Even with the complexity of the business practice and transactions, accounting techniques are still applied. For the government to devolve funds to different states from the federal level, treasury uses accounting information. Accounting information is in forecasting future transactions, as well as growth of the organization and its projects. Accounting is a profession that is used as an instrument of change in the society (Morgan 1988). For any society to experience development and change, social, economic data is collected. The accountant who reports a comprehensive report on the need of the community analyzes the data. The information is then used to allocate resources to improve the welfare of a society. Economic principles, financial policies, and budgetary decisions in an organization are made using accounting information. Accounting has helped the society not to lose funds that would have been lost through financial malpractice. Due to changing business environments, transactions have become very complex. Nowadays, there are intellectual property rights, which are not tangible, but are regarded as assets with monetary value. This complexity has made it difficult to maintain the traditional standard accounting principles, hence creating loopholes. Unscrupulous managers have taken advantage of the loopholes to commit financial fraud. However, accounting as a profession, requires an audit of the financial records for a given period of operation. Auditing is done to give a fair view of the financial position of the organization (Nørreklit et al. 2010). It is done both internally and externally. Internal auditors conduct regular audits (Florin 2014). Audit reports are used by the management as a tool to verify the authenticity of recorded financial transactions. They check whether they are entered properly in the system in accordance with laid down principles, and check for any misappropriation of assets or leakage of revenues. They ensure conformity and compliance to the financial management principles of the organization (Mattessich 2013). On the other hand, external audits are conducted annually by chartered accountants, to report on the true reflection of the balance sheet and profit and loss for the end of the year. All these controls in auditing are implemented to safeguard the monetary resources of the society. Accountants help the society by fulfilling their social obligations of expressing their views on taxation policies, influence of the rate of tax on the economy and other areas of the economy in which they may have more knowledge than the general public. They help the businesspersons who are members of the society to settle their liabilities under the governing regulation, by representing them before the tax authorities. They help reduce the burden of taxation on the society through proper planning of tax affairs. Accounting acts as consultancy firm to the society by giving and disseminating information used for planning. It organizes the operations, controlling the use of resources and formulating of corporate strategies. Many organizations make corporate decision on capital investment, expansion and new product lines based on the accounting information. The society relies on the short-term and long-term credit to get capital to start the businesses and to expand their operations. For financial institutions such as banks and microfinance organization, they rely on financial information to advance credit (Frezatti et al. 2014). Financial information depicts the performance of businesses. The money owed to suppliers and money not paid by the debtors is captured in accounting records. This information is critical to the bank advancing credit to its borrowers. It helps them to know if the borrowers will manage to repay the loan or if they are likely to default. Good financial management in the banking sector is important to the economic well-being of the country. A mismanaged banking system affects the investors’ confidence, the depositor’s money and leads to inflation. Accounting is thus, very imperative to economic sustainability of any country. The stability of any society is dictated by the ability of the citizenry to meet their daily needs. High levels of unemployment create the problem of insecurity. Accounting as a profession comes in handy to help the government alleviate this challenge by use of financial information. By using financial data, organizations are able to set apart funds for social, corporate responsibilities. Many companies take up the corporate social responsibility initiatives as a way of uplifting the community that has supported them. The activities undertaken are determined by the needs of the society as surveyed by the needs assessment team. The accounting department gives the approval and recommendation on the project depending on available funds. Finaly, accounting plays the role of directing an organization and society. Directing is a function of the management and government respectively. To direct efficiently, one needs to have the right information and a clear perspective of the goals. The information is provided by the accountants and helps in deciding the direction of the organization. In conclusion, accounting is a profession that can be equated to a craft that has evolved. It has an imperative role in the society that cannot be overlooked. It is a tool for social and cultural transformation, and its use determines the decision making process of the stakeholders, governments, and the society at large. References Frezatti, F, Carter, D, & Barroso, M 2014, 'Accounting Without Accounting informational Proxies And The Construction Of Organisational Discourses', Accounting, Auditing & Accountability Journal, 27, 3, P. 426. Florin, B. 2014, 'Development Of Decision Making By Managers With Financial And Accounting Information', Annals Of The University Of Oradea, Economic Science Series, 23, 1, pp. 837-844. Morgan, G 1988, 'Accounting As Reality Construction: Towards A New Epistemology for Accounting Practice', Accounting, Organizations & Society, 13, 5, Pp. 477-485. Mattessich, R. 2013, Reality, and Accounting: Ontological Explorations in the Economic and Social Sciences, New York: Rutledge. McWatters, C, & Lemarchand, Y 2013, 'Merchant Networks and Accounting Discourse: The Role of Accounting Transactions in Network Relations', Accounting History Review, 23, 1, pp. 49-83. Nørreklit, H, Nørreklit, L, & Mitchell, F 2010, 'Towards A Paradigmatic Foundation For Accounting Practice', Accounting, Auditing & Accountability Journal, 23, 6, P. 733, Publisher Provided Full Text Searching File, Ebscohost, Viewed 3 November 2014. Salter, S, Kang, T, Gotti, G, & Doupnik, T 2013, 'The Role Of Social Values, Accounting Values And Institutions In Determining Accounting Conservatism', Management International Review (Mir), 53, 4, Pp. 607-632. Read More