Evaluate The Role Of Accounting Accounting Essay

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This essay critically analyses the role of accounting in a variety of fields. First, I acknowledge the statement that accounting has one role to satisfy users' needs and it is too definite to recognise it as the only role. Second, I argue that accounting data has diverse role in users which could be divided into three main subjects-individuals, organisations and the society. I will introduce the importance of accounting theory in these fields respectively. And in specific, accounting not only helps people in daily life about financial management, but also helps organisations in performance evaluation, budgetary participation and organisational effectiveness. Even the society is affected by accounting in the aspect of collecting, analysing and communicating economic information (HubPages).Here the roles of accounting would be clarified in the following essay.

Accounting itself is not a target; instead it is an approach to achieve the set target. Determining the functions of accounting, it happens in society in the form of theories and imagery and it is the method used by companies to report on their financial performance. However, it can influence the functions of society and it is practised by people for people (HubPages). People, organisations and the government all use accounting as a language to communicate financial and other information. Accounting is also considered to be a profession, a social force, and even an intellectual discipline. Accountants and managers engaged in the accounting could use it to report to wider society about certain messages of these particular organisations. Accounting does really help people, organisations and government to solve their resource allocation problems, and what to buy, hold or sell. Alternatives could also be evaluated by accounting theory and it benefits less uncertainty.Common-sense theories have been shaped by diverse images which are to make accounting meaningful. Concerning the prominent concept of True and Fair View (Solomon et al., 1966), it does not mean absolute truth of organisations. Instead it requires comparative truth of the organisation image. It is suggested that financial conditions and operating results should be presented in a True and Fair View, and thus it makes others accept the way accounting constructed. Ruth Hines introduces the idea that accounting creates reality. (Hines, 1988)

Personal accounting is one kind of personal finance to help one manage his or her money.It follows the tracks of assets, daily income and outcome, keeping to every detailed entry. Under the umbrella of personal accounting, people learn to timely find out the condition of their financial accounts whether income versus expenses monthly, which in order to maintain the balance of their personal accounts. In addition, according to the financial accounting report of the separate companies, individuals choose to spend money in investing in their stocks and bonds. Sometimes people hire professional agency and accountants to help them decide what to buy and how to invest to gain more money. As Morgan said in his article, accounting was a historical record as an extension of the owner's personal memory. (Morgan et al, 1982, p309) Unlike other fields of professions, accounting does not thoroughly need a body of theoretical knowledge to take use of it. Everybody would use accounting information in daily life even though he or she is not capable of listing entries or making accounting statements. In my opinion, even the easy calculation is counted as accounting information in people's daily life in that it requires few rules sometimes as the bookkeeping of journals.

In terms of the achievement of an organisation and its internal process of operation, accounting plays an indispensable role. Accounting is so vital that acts like the blood of an organisation and an organisation could not run smoothly without accounting system, as well as competing with other businesses. Accounting helps an organisation to make storage of a series of financial entries, as well as to arrange the records of the accounts and its balance. Hence the board could make clear of some certain period of time or the overall operation of the organisation accurately via the statement which in order to make more profits and less loss. Additionally, accounting also plays an important role in decision making internally for an organisation. An accounting system is of great value in making wise decisions for an organisation in that it provides all the detailed financial information in the statement. Except for the sequential entries of financial activities, a great amount of quantitative data is revealed in the accounting information, relating to some specific economic entities. It could realize the status that every pound had been spent to the point and could be tracked through the accounting system. The statement also shows which of the assets of the organisation are profitable and which are not. Thus the accounting system is so indispensable not only in running an organisation but also in perpetuating a sustainable one.

Similarly, accounting information could be also used externally by some potential investors in deciding whether to buy or not buy the bonds and stocks of the organisation. According to the generated accounting reports, not only the owner of the organisation but also the investors could know well of the financial health of the company at any time they want, calculating and projecting operational problems, budgets and compensation. At the same time, state and federal taxes could be calculated along with a series of vital ratios which could be used as reference data by investors. The current ratio is to dividecurrent assets by current liabilities, and the debt to total assets is to divide total assets by total liabilities. It becomes easier today to calculate these data due to the updated accounting software. Due to this accounting data, all the essential information could be provided to the managers and employees, as well as the investors and leaders. And it could help them make correct responding business decisions. Nowadays, the accounting theories are recognised as the Generally Accepted Accounting Principles (GAAP). It figures out via some of the basic accounting principles that assets are the sum of liabilities and stockholders' equity in the balance sheet. In terms of the income statement, it concludes that net income or net loss is the discrepancy of revenues and expenses. Next, the statement of retained earnings consists of the dividends detaching from the net income in the above statement. Owing to this bookkeeping, no entries could be hidden and daily transactions could be tracked specifically which could help avoid any frauds.

Considering the importance of accounting from a generally social perspective, it plays the central role in the society in terms of 'collecting, analysing and communicating economic information'. (Atrill & McLaney, 1995, p1) Society is not just the combination of individuals; it is connected to each other in a complex relationship chain. Accounting is socially constructed and has a potent influence on the whole development of society in that it was the criteria of accounting profits which is used to adjust the macrocontrol of the national economy such as prices, jobs, taxes and etc. It functions more like an art rather than a science. During the early period when the society is still simplistic, accounting has evolved as a craft. However, accompanied with changes in social and economic activities, accounting has no longer merely an art and it acted to supervise missions to be more adaptable and responsive. From then on, accounting has made changes of its position in the entire society and a great number of rules and regulations have been created and regulated to implement the accounting theory. In terms of the economic aspect of accounting in the society, it is to provide information on nationally economic financial decisions. Companies need to report to the authorised parties who are interested in their accounting information and performance.

According to the case study of Libya, a country which came out of civil war, it can reveal the importance of accounting role. There are two organisations are within this country, one is General Company for Pipelines which is examined as the provider of information, and another one is the Industry Secretariat which is examined as the user or stakeholder. This study helps to enhance awareness of the role of accounting and its potential contribution to macro and micro economic development, as well as to make a difference in developing countries. (Shareia, 2006)

Concerning the conceptual framework, is has been considered to accounting practice, which contains accounting definitions and concepts. The conceptual framework of accounting is defined as 'a coherent system of interrelated objectives and fundamentals that is expected to lead to consistent standards'. (Deegan & Unerman, 2011, p206) It attempts to form a theory of accounting with superior structure. Conceptual frameworks provide certain actions with a great deal of prescription which are considered to equip with normative characteristics, for example, when to recognise an asset for financial statement purposes. Furthermore, conceptual framework prescribes the nature, function of financial reporting, as well as the limits of accounting. It is with great help to accounting when there was an improved conceptual framework developed. There are a great number of documents published to improve conceptual framework for financial reporting, for example, The Objective of Financial Reporting and Qualitative Characteristics of Decision-useful Financial Reporting Information (IASB, 2006), and Exposure Draft of an Improved Conceptual Framework for Financial Reporting (IASB, 2008c). The current objective of financial reporting is being developed jointly by the IASB and the FASB regarding conceptual framework. (Hines, 1991) However, it is not totally helpful to accounting because there still exists objectives disagreed by the IASB and the FASB.

In spite of the emerged merits of accounting, it still has limitations. From the view of decision-making, we need not only the past transactions recorded in the statements but also information about present and future. Except for the provisions of financial information, we also need non-financial information such as behavioural activities and socio-economic one. It means the data about behaviours and results of human activities must be provided to boost performance evaluation and decision-making. In a word, accounting provides managerial information rather than decisional information, by the means of satisfying different kinds of requirements.

In conclusion, it is indeed necessary for people to realize the importance of accounting. It is meaningful and helpful to take advantage of the roles of accounting in people's daily financial life, companies' operation and economic issues in society. From specific to general, accounting not only plays narrow role such as meeting immediate users' needs, but also plays a broader role such as a solution to national budgetary deficit. Without accounting, there will only be a mess in the whole society and every issue suffers. Hence, we people should study and apply accounting into practise and supplement it for perfection to benefit the future society.

Word count: 1784

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