Use of accounting information

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People who make business decisions have power yet are also accountable for responsible for their actions. Decision-making is an essential and compelling element of successful business and accordingly entails working with and through other individuals by coordinating their work activities in order to achieve organisational goals (Balnave, Agrawa, & Mahony, 2007). Individuals have certain influences in today's society which give them different levels of powers which they can cause conflict within society where an imbalance can occur due to the way the power differences are exercised. Accounting information provides the understanding of the results of business transactions and evaluates the financial state of the organisation with the knowledge for production, marketing and financing (reference[YASIR]). Therefore the use of accounting information is of great importance as it assists managers in making informed business decisions that allow them to be better equipped in their management and control functions

Power is the possession of control or authority over people to achieve an effect. Accountants in today's organisational settings have power within their organisations to ethically make business decisions. The use of an accountant's power in business decisions could impact the business in a positive or negative way. As the level of power increases so does the level of responsibility that an individual possesses. Businesses are recognised by society in regards to the positive power they have towards maintaining their corporate social responsibility. (need a reference somewhere for this paragraph)

On the contrary, businesses are also recognised when they do not uphold their corporate social responsibility as reflected in the case of James Hardie. The accountants and managers are liable for the actions of concealing the truth about the hazardous substances the employees were working with. An article from the Sydney Morning Herald tells of how the company did not sustain its corporate social responsibility with releasing information that James Hardie has acknowledged and had thus resulted in the company putting money into a compensation fund for all the victims whom had suffered due to their unethical decision making (Annandale, 2009).

Accurate information used by businesses affect many different areas of decision making. A manager of a business can use the information provided by accountants to make other decisions within the business. If the information acquired from the accountant is misleading then it will cause the rest of the decisions to also be inaccurate. Therefore, ethics in decision making such as the use and release of accurate information has consequences for a business and must be taken in account. (need a reference somewhere for this paragraph)

It is important for management within all organisations to be attentive of its responsibilities pertaining to the law and society. Corporate governance is concerned about whether the power of an organisation is channelled for the agreed purpose, rather than diverted to some other purpose. It is a system that strives to give order to the exercise of power in corporate entities; it deals with the rights and responsibilities of a company's management, its board, shareholders and various stakeholders. Market confidence and company performance will be affected by poor corporate governance, and as a result, it is an essential design for entities to grasp in order to be granted access to capital. Companies well run, will flourish whereas poor corporate governance will diminish a company's potential and initiate the manner for financial difficulties and fraud. (Birt, Chalmere, Beal, Brooke, Byrne, & Oliver, 2007)

Corporate social responsibility is a concept in which an entity tenders responsibility to all stakeholders, including to society and the physical environment in which it operates. Accountants are valuable in their capability to assist entities meet their social and environmental responsibilities as well as assisting in corporate social responsibility reporting. Triple bottom line is a method utilised and promoted to help companies consider their environmental and social impact. The entity's long-term viability is an act of how sufficiently it can steady the areas of its social, economic and environmental performance. (Birt, Chalmere, Beal, Brooke, Byrne, & Oliver, 2007).

Decisions must be made objectively by directors of a company, and in the best interests of the company's business and to shareholders. They are governed by the responsibility to manage the company successfully and to yield profits for theirs shareholders (QFinance, 2009). In order for this to be done, directors must work ethically, within the framework of laws and regulations. Any infringements of directors' duties and to the Corporations Act are enforceable by law, and will be faced with disciplinary and legal action. An example of failure in corporate governance lies with the Enron scandal.

Enron Corporation was obliterated of over $60 billion in market value from its collapse on December 2, 2001. FY 2000 witnessed 96 percent of Enron's reported net income and 105 percent of its reported funds flow ascribed as accounting violations. Enron's debt was underestimated via the $10 billion reported as opposed to $22 billion actual debt. All these financial problems were dwarfed by poor management and strategy (Lagace, 2004). Enron's ethical drift was cultivated by deceit and denial. This drift was further motivated by the company's drive in trying to control its credit rating and in managing their need for cash and earnings volatility

Accountants are important to businesses to help in the management of financial issues such as profits, loss, debts and efficiency. Accountants assist decision making by analysing and attempting to solve ethical problems faced by certain financial transactions or difficult business reporting decisions. According to the professions framework, financial reporting should provide information that is useful to present and potential investors, creditors and to other users making rational investment, credit, and similar decisions. When determining whether the quality of accounting information used is good, or whether it needs to be improved, is through finding out if the information is both relevant and reliable. (reference needed here somewhere)

Sometimes, irrelevant and unreliable reporting decisions and accounting information is administered to an organisation or user. Unfairness, deception, and even fraudulent activity may distort disclosed information; therefore decision makers who base their decisions on such information must take precautions in the usage of information as they be held with full responsibility and accountability to all ethical and economic causes to users or organisations impacted. An example of poor unsatisfactory reporting decisions and information is the Enron scandal which has lead to problems that not only affected the user economically but also other end users too.

Enron and its accounting firm, Arthur Andersen's accounting practices, together became a problem where reports showed that Enron had been missing numbers for years. Most of the debts and losses were not being reported from the company and has soon created a major impact on the company that being bankrupt, bringing down those working for Enron down with it. Millions of dollars and thousands of jobs had were lost due to the scandal. Those that have been brought down have lost their savings and child fees and their jobs.

Companies have also been affected by the Enron scandal. One of the top five accounting firms in the world during the time of the scandal was Arthur Anderson and has since collapsed. Worldcom, a big telecommunication company had also went bankrupt but fortunately picked up by Verizon. Enron caused massive problems for many due to their lack of management and financial accountability.

Therefore, it is necessary for people who make business decisions to remember that the actions that they choose to take on behalf of the business will affect the businesses performance financially. Accounting information plays a major part in its decision making, within its professions framework, showing the relevant information which affects the business. With the power that accountants and managers have it is important that they also act ethically. When a company does not operate in an ethical matter, it can have consequences as are the case for Enron and James Hardie. This is results of poor decision making is reflected in the cases of Enron going bankrupt for concealing financial reports and with James Hardie having to pay compensation for the victims. Not only is there costly attributes when acting unethically but the community's perception of the company may be altered into negatively impacting the company and its performance also. The power that business decisions have it affects the business as a whole, hence relevant accounting information is able to help with the ethical decisions needed to be made.

Bibliography

  • Annandale, W. O. (2009, April 25). James Hardie disease was the loss of a sense of social responsibility. 8. Sydney, NSW, Australia: The Sydney Morning Herald.
  • Balnave, N., Agrawa, R., & Mahony, K. (2007). Management Dynamics. Frenchs Forest: Pearson Custom Publishing.
  • Birt, J., Chalmere, K., Beal, D., Brooke, A., Byrne, S., & Oliver, J. (2007). Accounting: Business Reporting for Decision Making. Milton: John Wiley & Sons.
  • Lagace, M. (2004, July 12). Enron's Lessons for Managers. Retrieved April 21, 2010, from Harvard Business School: http://hbswk.hbs.edu/item/4253.html
  • QFinance. (2009). Defining Corporate Governance: Its Aims, Goals, and Responsibilities. Retrieved April 22, 2010, from Bloomsbury Information Ltd: http://www.qfinance.com/corporate-governance-checklists/defining-corporate-governance-its-aims-goals-and-responsibilities

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