Accountants who can not only help managers on cost control but also provide the financial information which shareholders and the government need could be the most important role in information flow of firms. In the past, accounting information may only be related to quantity of the company's capital. Accounting information, nowadays, include more information which is requested by external users such as government. Berry and Jarvis (2006:6) reveal that 'most of the information still relates to financial performance, annual reports of organizations now contain information that is not financial and relates to other areas such as governance.' This clearly shows that accounting information is no longer solely used for making decisions by managers. Therefore, responsibility of accountants such as transparency and honesty is important. However, some financial scandals still happen in recent years. For example, Enron's top level management ignored long term problems in the accounting reports and then published news about going bankrupt within one month when they corrected it. Thus, this essay aims to discuss how accountants can influence the information flow which is employed by internal managers and external users and, in addition, try to analyse advantages and disadvantages of issues when managers or external users trust the data without critical thinking.
Responsibilities of accountants
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Boczko and Davies (2005:20) had defined accountants as: 'the practice of accounting.' It has been known that financial and accounting reports such as balance sheet, cash flow statement and income statement are written by accountants. Accountants should provide honest and transparent financial reports because people have right to know about the status of companies. For example, people who use financial reports for investment or management may care about colour which is red means financial loss or crisis of the numbers in accounting report. In addition, responsibility of accountants may not only focus on the data in accounting reports but also help managers for making decisions. Boczko and Davies (2005:629) concluded that "accountants must not only ensure that information is accurate, reliable and timely but also that it is relevant for the purpose for which it is being provided, consistent for comparability, and easily understood."
How accountants effect information flow
Berry and Jarvis (2006:7) identified that accounting information can be used by two groups of people: those inside the enterprise such as the managers; those outside the enterprise such as shareholders, banks, tax authorities, and the government. Internal and external users could use accounting information for planning, decision making and other needs. Boczko and Davies (2005:629) have shown that
The role of the accountant can be seen to have changed as IT systems have eliminated the need for tasksâ€¦. Accountants are now more involved with analysis and evaluation of information, and the use of techniques in support of business decision-making.
In other words, accountants are one of factors influencing information flow within firms. As the figure 1 illustrated, Sen (2007) demonstrated that chief financial officer (CFO) who is professional accountant could be the core role within business organisation. This clearly shows that accountants are core role in companies and managers should know how important accountants are. It is widely believed that information flow which is provided by accountants could deeply influence internal managers to make every decision. Berry and Jarvis (2006:14) stated that 'financial accounting information relates to the past and the decisions that need to be taken relate to the future.' In my experience, for example, when a manager wants to purchase new equipment to improve staff's work efficiency, he or she always has to ask chief financial officer's opinion because this decision may affect the data in company's financial reports.
As the figure 2 shows, Boczko and Davies (2005:28) revealed that financial information is important to a wide range of groups both internal and external to the organisation. This clearly shows that many external users such as customers may use firms' financial information. For example, the government can ask company to pay more tax depends on their financial information. Financial information is also required by citizens who can use the information to assess companies' issues such as social responsibility, political situation and environmental care.Moreover, external users may also use financial reports for many reasons. Berry and Jarvis (2006:8) claimed that financial information such as balance sheets and cash flow statements can be used by lenders who lend money in order to earn a return on that money. I, as an investor, for example, always check company's financial information before I become its stakeholder. Furthermore, there are different financial reports and information which can be used in different and specific way. Berry and Robertson (2002) cited in Berry and Jarvis (2006:11) pointed out that the cash flow statement was the most important statement of the three primary financial statements. Cash flow statement could be part of meaning of financial information flow.
How accountants can contribute to efficient information flow
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Although financial information is very useful for internal and external users, there are still some limitations of it. Berry and Jarvis (2006:14) argued that 'financial reports are often difficult to measure with any accuracy and the figures therefore become more subjectiveâ€¦.certain items are difficult to quantify in terms of value and are not easily included in financial reports.' Company leaders may only know the numbers in their competitors' financial reports. These can be used for leaders to ensure their competitors are stronger or weaker than their own companies. However, their competitors' financial reports may hide financial risk such as income problem which purchasers may not pay the payment in time. For instance, Buondonno et al (2005) reported that 'Enron incurred a $638 million dollar loss for their third quarter in 2001 and overstated their earnings by $586 million over the past four years.' This kind of event could influence not only the operation of firms but also global economics. The evidence suggests that accountants could employ new information technology to efficient information flow both within and outside business organisations. Alves (2010) suggested that 'Information technology plays a critical role in modern business, especially regarding the accounting function.' It is widely accepted that accountant should use information technology to raise the level of satisfaction which is felt by internal and external users. As the figure 3 below, Alves (2010) proposed that information technology investment is related to the level of satisfaction with accounting information. In my experience, for example, if a firm uses high technology system to report their financial reports more detail even more complex, people may feel satisfied with the accountants and their reports.
There are many information technologies in the world. One of possible and acceptable system which is called enterprise resource planning (ERP) system should be implement in firms. Boczko and Davies (2005:612) described enterprise resource planning (ERP) system as: "support processes external to the organisation that may facilitate information flows and global operations between the organisation and its trading partners, suppliers, and customers." In addition, ERP system is a real time system which can report by monthly, weekly and daily. This function could be crucial for leaders for making decision. Another advantage of ERP system is that data can only input one time and then used in many ways. Boczko and Davies (2005:612) highlighted that "this may provide benefits to the organisation from changing its business processes in line with 'best practice' rather than continuing with organisational methods that may be out of date and no longer appropriate." Company leaders and accountants should use these advantages of ERP system for efficient information flow.
Alternatively, company's financial reports should be audited by external professors who are certified by authority organisations and have more experience about finding bugs in financial reports. Thus, Certified Public Accountants (CPA) could be another possible solution for preventing financial fraud. Fan et al (2009) recommended that 'CPAs should fulfil (sic) their own responsibility-auditing the accounting information provided by listed companies strictly.' If companies can provide real information and certified public accountants can audit financial reports more detail, financial fraud or event may not happen or, in other words, it could possible be prevented. Wang (2010) suggested that 'the external governance of CPA professions is more effective to corporate governanceâ€¦ and these internal and external elements have significant influence on the quality control of audit reports.' Therefore, firms should hire certified public accountants to audit their own financial reports and then they may give high quality of financial reports to external public.
To conclude, responsibility of accountants is that they should give real quantity of financial reports about firms' capital and other information such as cash flow. Furthermore, financial information and reports may affect information flow to internal users in, for example, decision-making and external users in, for example, investment. In order to ensure the data in companies' annual financial reports are real and valuable, accountants should use information technology such as ERP system to efficient the information flow both within and outside business organisation. For example, accountants should use the real time function in ERP system to make sure the data is trustworthy. Moreover, certified public accountants should join the process of making financial reports or they may organise a group to audit firms' financial reports and financial information flow.
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