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Accounting has played an important role in the advancement of a society and can be considered as a form of communication between different arenas or sectors of the society. This information is communicated to the users in the form of a financial statement that is socially constructed with the aim to provide true and fair views.
Around fifty years back there was no legal framework due to which there were many loopholes in accountancy. That was the time when accounting as a profession needed to be organized and overlooked due to which SSAP2 was introduced in 1971.This provided a knowledge base for accounting, which got its final shape of a single coherent set of accounting conventions that explained accounting practice known as conceptual framework. Lecture Notes (Lecture 3)
According to Deegan & Unerman (pg.10) conceptual Framework in accounting is an explanatory theory that relies upon various concepts like prudence, going concern and materiality.
These concepts are based on different theories in accounting which are interpreted by different academic researchers in their own way, ending up with different images relative to accounting.
Over the number of years many theories have been developed on the basis of knowledge which is based on perception, introspection, memory and faith in order to construct reality.
In accountancy the idea of bringing in true and fair view was to give a image of reality to accounting information, which many researchers don't believe.
Furthermore this essay focuses on different images and to what extent these images helped to explore accounting in order to provide a natural image that can be used as a mirror to show reality.
Some of the images that helped to shaped and explore the financial accounting are which treated accounting as historical record, as current economic reality, as information system, as commodity, as a rationale, as methodology and as imagery.
From the Babylonian empire accounting record provides a history of "manager's stewardship of the owner's resources" where the managers were considered to safeguard the resources of the owners and in order to do this they used to keep historical records. (Morgan, et al., 1982, pg 310)
When accounting is viewed as providing a historical record, emphasis is placed on maintaining a faithful record of the actual exchange events of an entity with an assumption that it provides a true and fair view. (Morgan, 1988, pg311)
This image explored the skill of an accountant when we see that accounting data is summarized and classified in a manner that facilitates the reporting of relevant events.
According to Tinker (1991, pg297) the data summarized in financial statement is socially constructed and is not accurate and realistic, whereas on the other hand, Solomons (1991, pg287) believed that accountants are like journalists who "faithfully represent" economics as a reality, which is the next most important image of accounting.
The economic reality images an idea that current and future prices affect the enterprise behavior, so it is the duty of accountants to revalue the balance sheet figures in financial statements in order to provide current value information with the determination of true income that reflect the changes in the organization over a period of time.
According to Morgan the economic reality images that accounting based on current values is useful before investigation and often tends to ignore the existence of the diverse and divergent needs of users affecting the accountability and credibility of accounting. As many stakeholders of companies believed that the accountants were not representing the economic reality instead they are using creative accounting for the betterment of the company. This was done in the case on Enron where there was improper recognition of revenue and misreporting expenses.
Accounting information system is another image of accounting which could be very useful to look over the scandals like Enron's and to provide enlightenment and understanding.
It is an image where the financial accounting is seen as an information system process conceived in its simplest form linking an information transmitter (usually, the accountant), a channel of communication and a receiver (external users). (Davis, S.W., et al,. 1982).
The information systems image of accounting persuades an accountant to know how the user would want to review the accounting information so they can design according to their need.
This image proved to be a little problematic as there are numerous users of accounting information and it would not be possible for accountants to cater for all of them.
"The accounting systems need no longer be justified in terms of their ability to generate "true income as the many different users find the information useful, the utility of the system can be established." (Davis, S.W., et al,. 1982).
Accounting information is also seen as an economics commodity, as it is produced because of the huge demand for specialized information, and accountants supply in order to fulfill these demands. On the contrary if accounting is considered as a public commodity then definitely its production and distribution needs to be regulated by a body to have a better allocation of resources. For this the accountants can also do the cost benefit analysis before providing the accounting information and as a result this provides a market for accounting information with its derived demand and supply.
This image of accounting reflects the social conditions in accounting and given increase to regulation and increased public interest in concern to scarce resources with many competing demands, on the other hand it also provided the justification for accounting policies that is another image of accounting which seek to aid the allocation of resources in the service of the public interest.
Accounting may be viewed as rationale that is attaching meaning to different events and providing justification for future transactions.
This image explore accounting by showing that numbers provided by accountants for different organizations are not just "numbers" but are the "legitimate product of accounting that issued to justify particular decision taken" (Ahmed, R.,1943, pg 103).
One of the main concepts in conceptual framework also underlines the same image which is going concern; under going concern the accountants predict that the business would be running in the foreseeable future.
Accountants socially construct numbers in such a way that they rationalize the future running of the company to the users.
Here it is extremely easy for the users to understand the socially constructed numbers of accountants because accounting provides a complex economic phenomenon in a more simplifies and comprehensible way.
Hence accounting here can be viewed as methodology. We can see that accounting information helps intelligent choices to be made through its convenient ways of proving information in its simplest form.
For example if someone would like to invest in shares of a company, he would simply pick up their annual financial statements which would provide him a summary of annual profits and expected future profits. This would assist him in making the right choice with a crystal clear view in his mind, of whether he should invest or not; whether it will be beneficial for him to do so.
In regard the decision would actually be made by keeping in mind the image that these financial statements have created, Consequently accounting itself can be treated as imagery that it itself contributes to the creation of image that may be created through selective interpretation and representation of events in order to creates stable and certain conditions for decision making.
There had been many conflicts between Solomons and Tinker over the image that accounting gave and both Tinker and Solomons can be considered right in their own views as they had different imagery created in their mind which forced them to have different view.
Overall if see all these images have some limitations; if we view accounting as historical record we see the current prices have been ignored; if we see accounting as economic reality, many authors believe that some of the information is manipulated; when we see accounting as an information system we see that it become difficult for accounting to full fill the demand of all the users; when we see accounting as a commodity we see that there is a problem of scarce resources due to which accounting information is limited; if accounting is viewed as a methodology we that accounting is socially constructed and it may not provide a true and fair view; if we look accounting as rationale, accounting may not be able to justify everything that it should be accounted for; and lastly when accounting itself is viewed as imagery we see that it acts as a picture of the organization through selective choice of events which may have been manipulated for the interest of organization itself.
But in my view images has helped a lot to explore accounting and gave it a meaning so that people can understand all the accounting knowledge and easily create a positive imagery of accounting in their mind.
According to Morgan these images provided useful contrasts that placed researcher's own one sided images in sharp focus and helped them to broaden and refine their research strategies.
We have seen above that there have been many new images brought in the accounting profession which gave a powerful insight by "furnishing fresh perspectives of familiar phenomena and by revealing unexplored aspects of accounting processes" (Morgan, 1982, pg315).
In my view accounting need to be more strictly regulated and organized in such a way that it provide better understanding to its users and new Images to the field of accounting need to be introduced which can provide a help for the users of accounting to understand the new accounting convections.
- Davis, S.W., Menon, K., Morgan, G., 1982. The Images That Have Shaped Accounting Theory. Accounting Organization and society, Vol.7, No.4, pp. 307-318.
- Morgan, G., 1988. Accounting as a Reality Construction: towards new epistemology for accounting practice. Accounting Organization and society, Vol.13, No.5, pp. 477-485.
- Tinker, T., 1991. The Accountant as Partisan. Accounting Organization and Society, Vol. 16, No.3, pp. 297-310.
- Solomons, D., 1991. Accounting And Social Changes: a neutralist view. Accounting Organization and society, Vol.16, No.3, pp. 287-295.
- Lecture Notes (Lecture 3).
- Deegan, C., & Unerman, J., 2003, Financial Accounting Theory. 4th ed. Europe: McGraw-Hill Education.
- Belkaoui, A., 1943. Accounting Theory. 5th ed. London: Thomson Learning.