History Of The Financial Accounting Theory Accounting Essay

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The purpose of this essay is to argue that accounting is not only has one role for satisfy user needs. May be some people think there is only one role of accounting that just is to satisfy user needs. In fact, this view is too narrow and not enough scientific.

Accounting is a kind of service activity, and it also is the process of recognition, measurement and transmission economic information, the purpose is to make information that users can obtain information in full, on the basis of judgment and decision-making. (Elliot, 2004, P.3) This information is mainly using monetary form for expression. (Elliot, 2004, P.3) In society, either profit-seeking or not-for-profit business organizations need to use accounting information, such as hotels and hospitals. The key points of this essay are the roles of accounting, and accounting information is a kind of 'Knowledge', 'Resource', and 'Communication'. In addition, accounting information in opinion also is a 'profession' what is including 'Basic Information Collector', 'Information Management Center', and 'Decision makers Assistant'. All of these roles are relevant to users for making economic decision.

To begin with, accounting theory is useful for users and its development directly influence society such issues of bonds from government will be change. Tinker and Solomon are contributors to the development of accounting theory that put forward about the use of accounting imagery. Solomon (1991, p.287-295) states accountants as journalists, they should catch real economic speed. They also should like a telephone to convey information. Furthermore, Solomon (1991, p.287-p.295) suggested that 'accounting should function like cartography in producing maps of economic reality'. These images make people to have a better understanding of how to accounting should function in an ideal world.

However, Tinker does not agree with Solomon's use of metaphors, he thinks his view is unsuitability. (Tinker, 1991, p.300) He also argues that "the telephone doesn't convey thoughts but what people say which leads to intentional and unintentional bias, as the telephone is selective."(Tinker, 1991, p.300) In short, accounting effected from the technology and globalization, and it has evolved as a craft during under the complex environment of society and business. The development of accounting theory impact on the users and it also relate to their benefit from investing and other business activities. In addition, users include lenders, suppliers, governments, customers, potential investors, and so on. All of them need the accounting information for doing business activities. For example, when investors want to invest in a listed company, they need some information that they can make a decision to choose company A or company B. This information also helps them determine to buy or sale or hold if investors already invested in. Why the users believe the information? The reason is 'Knowledge'. British philosopher Bacon states: "the person's knowledge and people power combine together for one party", "To achieve people's strength of roads and achieve the knowledge is closely linked together, and is almost the same," Bacon's view is the posterity expressed as famous slogan: "knowledge is power". (Ernst, 1990, p.96)

Accounting information is a kind of knowledge so the information is reliable such as data of financial statements, and the information is 'Fact'. As a proof example of point of this view, in 1999 Alan Francis states that 'Facts constitute a firm and reliable foundation for scientific knowledge'. (p.68) In addition, there are including two of seven sources of knowledge: 'Reason' and 'Faith'. (Ge Jiashu, 2003, p.4) The 'Reason' for users' understanding and it means users are easy to get the information what they are satisfied. 'Faith' is users' trust, they believe the information that they use is reliable. (Ge Jiashu, 2003, p.4)

Furthermore, 'True and Fair view' is important to mention, the reason is 'The view also provides a reasonable basis for entities to recognize and measure transactions, prepare financial statements and improve quality characteristics of the financial information etc.' (Ge Jiashu, 2003, p.4) The view also is the reason why users have 'Faith'. In short, The 'Knowledge' as a role of accounting information that makes the users feel they can trust to use.

'Resource' is a kind of role of accounting. The 'resource' not only can be using to measurement whether the accounting information users get is fact or not, but also it can be a 'standard' for judgment. The 'conceptual framework' can be a kind of the 'resource' because it is composed of a series of instructions for financial accounting and it can be used to evaluate existing accounting standard. It also can be used to guiding and developing future accounting standards and solve that the existing accounting standards have not involve the new accounting problems in before.( Botha, 1989, p.49)

In simple meaning, 'conceptual framework' is used to explain the whole accounting statements of the main oriented basic instructions. (Edwards, 1981, p.439) 'Conceptual Framework' is for the first time appeared in three file which is published by the US financial accounting standards board (FASB) on December 2, 1976 such as 'Financial accounting and reporting concept structure: financial statements of elements and their measurement'. (Miller and Redding, 1986, p.4) In 1930s, the United States and other western countries in order to standardize the public company accounting behavior and maintain the normal order of the capital market, they issued a series of accounting standards.

However, people found the concept use under standard and processing procedure and method have the lack of coordination, and even conflicting. (Nye and Berardo, 1966, p.11) Therefore, more and more people think it is necessary to formulate a 'concept framework' to unified 'concept', coordinate 'contradictions', and guide direction. (Nye and Berardo, 1966, p.11) In July 1989, the international accounting standards committee (IASC) published a report that is about 'Conceptual Framework', and it had a great impact on international accounting.

Fawcett (1997, p.98) states that 'Conceptual Framework' functions include determining the aim of financial accounting and financial reporting, defining elements of financial statements, and evaluation qualitative characteristics of financial accounting and accounting information. It is also to solve the financial statements elements of the recognition, measurement and reporting, and analysis some major financial and accounting problems. According to these functions and its role, users can confirm the accounting information they get whether it is accurate reliable or not.

Furthermore, in Hines' (1988, pp.251-261) opinion '……accounting has a long history, it seen as being socially constructed……it is practiced by people for people……' , he also suggested that accounting as an art better than it as a science. Therefore, accounting as a kind of language art which is for user needs, and it also called 'financial language'. The language described by financial statement, it is reliable because of 'True and Fair' view. It also is as a kind of 'Communication' tool for helping users to decision-making. And the 'Communication' is a role of accounting. For instance, the big problems of accountants that vision is not open, and usually not pay more attention to customer because accountants do not understand management and business. Those are the main cause of contradiction between accounting department and other departments of a company. Therefore, accounting is as a role of 'communication' to help them to co-operate with each other. Make shareholders as an example, they are not directly manage a company, so they need the 'communication' tool that is financial statements to know about the company performance, it is making profits or losses. Then they use the information to determine to continue running or shut down the company.

On the other hand, accounting as a 'Communication' will be a 'Fraud division'. In a case of Lehman brothers in 2008, the falling house prices influence Lehman started to lose money in 2006 to 2008. He concealed the real situation which is the loss money off-balance sheet. (BBC News. September 17, 2008) In Aaron's opinion (2008, p.79), in the short term, the market was not finding the risk, but when the crisis broke out the risk is exposed. In fact, the risk has accumulated a long time. The fourth quarter date in 2007 showed Lehman hidden problem assets that is 39 billion dollars, in the first half of 2008, the hidden assets reached 50 billion dollars. (Aaron, 2008, p.79) In this case, accounting information is a 'liar' that Lehman used it to 'communicate' public in fraud. In addition, the other case is Barings bank failures in 1995. It is similar that make false accounts lead to bank failures, and the 'communication' tool use in wrongful way will 'blind people's eyes'.

As an opinion, accounting also is a 'Profession', it helps people has power to understand their personal accounting. Key elements of personal accounting include income tracking, expenditure, and assets. Some users hire CPAs to help them investing in the best option, and understanding in tax and their responsibilities. Bank is a personal account that saving people's money, and tells them whether their account is health or not. The 'profession' is including 'Basic Information Collector', 'Information Management Center', and 'Decision makers Assistant'. They have a clear division of work, the 'collector' response for recording and collecting useful and accurate information such as some parts of the attrition rate, and that will helping control costs. The 'center' response to manage, measurement and judgment those information from 'collector' are valuably or not, and make they can play a role in company operation such as development a new production. The 'assistant' response to use accounting information for enterprise development planning, decision making, control, and performance evaluation, and that is management accounting. (Clinton, 2006, p.66)

To conclude, accounting not just have only role that is stratified user needs. It shows four main roles: 'Knowledge', 'Resource', 'Communication', and 'Profession'. The 'Knowledge' express Bacon's views to prove that accounting is reliable, and further give others example to illustration. Secondly, the 'Resource' part is including explaining 'conceptual framework' is important to accounting roles, and it is the first time appear on December 2, 1976 in three files, one of the files is 'Financial accounting and reporting concept structure: financial statements of elements and their measurement'. It also give others example for proofing. Thirdly, in the 'Communication' part, it gives two sides to discuss. On the one hand, when the 'communication' use in the reasonable and suitable, it will help users making decision. On the other hand, if it use in the wrongful side, it will be a 'liar' to fraud users and the results of fraud is to pay a heavy price such as going bankrupt. Finally, it shows the 'Profession' as a role of accounting and in this part the 'Basic Information Collector', 'Information Management Center', and 'Decision makers Assistant' have division work. They response to collect useful and valuably information, measure and judge what they need in the company operating, and help users making decision in the best. All of these are to argue that accounting has many roles, not just has one role.

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