Importance of Accountancy Essay
Accounting Profession: Going Beyond Economic Changes The Accounting profession has a wide scope of practices which enables them to function in many areas in our economy. While it works on various extents, accounting profession influences the financial market. According to the International Federation of Accountants (2007), professional accountants contribute across all sectors of the economy through public practice, private firms, profit or non-profit organizations, and even academic institutions.
Having such functionalities come great responsibility in maintaining its public value. “The way that individual accountants apply accounting, reporting and auditing standards has a powerful impact on the stability of financial markets” (Association of Chartered Certified Accountants, 2011). Accounting includes processes such as recording, classifying, summarizing and interpreting financial information. One procedure that is common to this profession is the Accounting cycle. There are ten steps to this cycle. Step one begins with analyzing transactions.
Step two – Journalize. Step three – Post. Step four – prepare unadjusted trial balance. Step five – adjust. Step six – prepare adjusted trial balance. Seven – prepare financial statements. Step eight – close. Step nine – Prepare a post-closing trial balance, and Step Ten – Reverse (Ballad, 2011). Following the same procedures, standards and principles, the cycle
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Although the Accountancy Profession in general is procedural and iterative in nature, it is still capable of adapting to the changing needs of our economy because of its prominence in improving business financial management, Importance of Accountancy profession despite economic changes By Germans investing public. Accounting professionals organize themselves around various faculties such as Auditing, Financial Accounting, and Management Accounting.
According to the American Accounting Associations, “an audit is a systematic of objectivity obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and established criteria and communicating the result to the interested users” ( as cited in Colossal, Tit, & Hermosa, 2011). “Financial accounting is primarily concerned with the recording of business transaction and the eventual preparation of financial statements intended for the internal and external users” (C. M. Avail, C. T.
Avail, & Parental, 2012). “Management accounting is concerned with providing information to parties inside an organization so that they can plan, control operations, make decisions, and evaluate performance… ” (Kinney & Ribbon, 2014). These are Just some of those branches that accountancy profession specialized with that contributes to the economic stability and financial accountability. Thus, accountancy profession lays down the foundation of every successful business which is the credibility of economic information needed for monitoring, evaluating, and interpreting business financial position.
Even though Accountancy profession in general is procedural and iterative in nature, it still is capable of adapting to the changing needs of our economy because of its ability to develop decision making process concerning financial management. These are the reasons why. “Management accountants can assess a wide range of data source to provide information, commentary, and supporting analysis about leading indicators of performance and risk” (Chartered Institute of Management Accountants [COMA], 2007, p. ). By providing the necessary information and proper interpretations through the accountants, effective decisions are made to assess and mitigate risk from uncertainty in financial market and project failures. As noted by COMA (2008, p. 8. ), “management accountants who can combine financial expertise with business understanding have the potential to support decision making in a wide range of roles throughout this process”.
These are the roles of performing series of task in ensuring financial security and handling all essential financial matters such as budgeting and aiding in strategic planning (“Role of the Management Accountant”, n. D. ). With such susceptibilities, decisions are guided, made and governed so that the intended goals of the organization are attained. “Financial management has its roots in accounting, although it may also be regarded as a branch of applied economics” (Pearson Education, n. D. , p. 19).
This clearly shows that financial management would not exist without accounting and accounting would not function without the proficiency of accountants. Accounting function discharges the function of systematic recording of transactions relating to the firm’s activities in the books of accounts and summarizing the same for presentation in the financial statements such as the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Shareholder’s Equity and the Cash Flow Statement (Caber, 2012, p. 8).
This presentations are further used for analysis and understanding of the firm’s financial position and financial management. Thus, Accounting Profession plays a vital role in the development of business financial changing needs of our economy with its proficiencies. Second, Accountancy profession also assists industries with their corporate strategy. According to a Harvard Business School MBA Program professor, David J. Collies (n. D. ), “corporate strategy is concerned with how companies, like Disney, create value across different businesses. … Asks how the corporation can add value over and above that which a business unit creates by itself. ” Strategic Management Accounting has been defined as “a form of management accounting in which emphasis is placed on information which relates to factors external to the firm, as well as non-financial information and internally generated information” (Inman, 1999). The role of accounting is required when strategic perspective is added to traditional management to spread in two erections. First, it is necessary that costs and strategy be combined through strategic cost analysis, thus align costs with strategy.
Secondly, to determine, the cost structure of competitors and to be guided by the changes over time (Bromidic, 1994). American M. E. Porter (1999), one of the main exponents of Strategic Management evaluates different industries in terms of their long-term profitability. He sees five competitive forces that will contribute to strategic equation. These are (a. ) the threat of new entrants into the market which is influenced by the cost of entry onto a market and the opportunity cost to make a profit; (b. ) the threat of substitute products or services; (c. Rivalry amongst existing organizations within the industry; (d. ) the bargaining power of suppliers and (e. ) the bargaining power of consumers (Collies, n. D. ). Strategic management accounting, which is done by professional accountants focuses on a larger picture and a longer term than traditional budgeting. The rapidly changing economic world means that planning horizons have shortened, and even then, projections beyond a year are little more than best estimates that are written. The focus is given to the role of accounting in prevalent control mechanisms.
Corporate control promotes values such as accountability, transparency, fairness and responsibility. These values are fundamental for the enhancement of the operations of securities’ markets which in the dubious environment of the 21st century seek relevant and reliable information based on transparent financial statements (Epstein, 2006). Thus, the use of transparent financial accounting information in corporate control mechanisms enhances the effectiveness of the governance process especially in straightening for the business’ operations.
Third, Accounting professionals like auditors are expected to give reasonable assurance that the financial statements are not materially misstated in accordance to the Philippine Standards on Auditing (AAAS) (Colossal et al. , 2011, p. 7). This assurance is of greater importance to the investing public which includes stakeholders or persons/entities who are interested in business’ performance and are willing to put up resources for the business to start and operate. Auditors take professional responsibilities when auditing financial statements.
Their opinion must e based on professional standards which are promulgated by the Assurance Standards Council (SASS). These standards are created to qualify the performance of individuals and organizations (Colossal et al. , 2011, p. 27). Without these set practices and procedures, it would be but impossible to compare what is proper accounting from what is not and even harder for stakeholders to make wise high quality accounting standards, the lifeblood of capital cannot be efficiently allocated to its best use in building and sustaining our economy and way of life.
The integrity of capitalism depends on the integrity of our accounting system” (Frazzle, 013). Integrity in financial reporting and the significance of giving the markets with reliable and credible information play a crucial role for the investors’ decisions study shows that despite the decline in the investment in the U. S. Stock markets as an outcome of the financial crisis and recession – from around 65 percent in 2008 to around 50 percent as of April 2013, investors continue relying on the security markets for their financial well-being (Public Company Accounting Oversight Board (PEPCO), 2013).
Prevalent nowadays the criticism regarding accounting which was said that goes not provide useful information to assist in the efficient allocation of capital in vigorous, rapidly-evolving setting such as Internet sector. And this criticism is being addressed by one the accountings primary goals which is to provide reliable information to facilitate the efficient allocation of capital “irrespective of the period and setting in which the financial accounting rules are applied” (Apothecary, Deemed, & Joss, 2010).
Thus, Accountancy profession is still capable of adapting the changing needs of our economy despite its procedural and iterative nature by giving reasonable assurance to the investing public. Though the procedural and iterative nature of work of the Accounting professionals has gained prominence in improving business financial management, assisting industries with corporate strategy, and giving reasonable assurance to investing public, some argue that since the standards being followed are inflexible, it leads to inefficiency given that company faces different experiences and has changing economic needs.
Opponents argue that the uniformity of rules and standards which must be complied by Accountancy professionals promotes inefficiencies since they need to fit the unique experiences of he companies to the fixed guidelines of the published accounting standards (“Inflexible framework”, n. D. ). According to Ray J. Ball (2006), an accounting researcher and Sidney Davidson Professor at the Graduate School of Business of the University of Chicago, “achieving uniformity in accounting standards seems easy in comparison with achieving uniformity in actual reporting behavior.
The latter would require radical change in the underlying economic and political forces that determine actual behavior. ” Another evidence can be seen in a study conducted by Ball, Robin, and Www (2003) which argued that reporting under accounting standards like the International Financial Reporting Standards (FIRS) is inefficient because financial statements provided by Chinese firms are not timely in reflecting economic gains or losses.
China’s experience in mandating SASS shows that it is difficult to achieve a noticeable improvement in financial reporting quality in practice by implanting exogenously developed accounting standards into a complex institutional environment. The accounting profession is trying to adapt to this changing world by focusing more intensely on fair value rather than historic costs. But the truth is that accounting (as it is conceived today) will never be able to fully account for many of the intangibles in a business (Adams, 2013).
Many intangibles like people, relationships and culture are not owned assets that can be isolated and quantified on a balance sheet. But they are critical to the competitive and collaborative the governing bodies may accompany greater cost and businesses may be bounded in making decisions. Greater competition is prevalent in the changing economy which leads businesses to deviate from the standards to lessen cost and to compete in the arrests. For example are the small privately held corporations who use cash receipts method so that tax payments may not be damaging to the business (“Small companies”, n. . ). Accounting activities collate data into standard, intelligible formats. An organization’s decision-takers can then use this to understand how well or badly the organization is performing and form a view on how the organization, in whole or in part, is likely to perform in the future (“The contribution of Accountants”, n. D. ). The information, design, gaming, signaling, and clarification problems are ever- resent in setting standards; they deserve consideration when we weigh the roles of uniform standards and norms in financial reporting (Sunder, 2009).
The accounting profession is not really undervalued but questioned as to its capability to adapt in the changing needs of our economy due to its procedural and iterative nature. The business world of economy is constantly changing and the only remedy of the accounting profession to adapt in this changing needs is to be flexible enough. However, what we are fighting for is that, even if accounting profession in general is reoccurred and iterative in nature, there is nothing to improve, expand, or expose because the prominence of accounting profession itself is capable and flexible enough to adapt in the changing needs of our economy.
Therefore, the Accountancy Profession has the capability to adapt in the changing needs of our economy despite of its procedural and iterative nature. By following the same procedures, standards, and principles, this customary accounting activity is financial stability. First, because of its capacity to enhance financial management, managers are able to assess and evaluate the performance of the business. Through accounting, decisions are guided and supported by reliable and credible financial information it provides.
Risks are also mitigated from uncertainty to avoid future loss of the business. Indeed, financial management has its roots in accounting for it will never exist without the financial data and its understanding with the help of accounting professionals. Next, because of its ability to support in building corporate strategies, industries are able to increase its value. This is possible for example when a business are able to generate more profits by reducing its cost or by making the eight investments that could upturn economic benefits.
With the help of accounting profession in the interpretation of current financial position, cash flows, and comprehensive income, management are able to formulate strategies for long-term profitability. The management can also control its operations in making the right decisions and strategy. Undeniably, strategic management lies its capacity to formulate tactics in the interpretations and understanding of transparent financial documents provided by the accounting professionals. Lastly, because of its facility to vive reasonable assurance, the investing public are able to put their trust in the business.
The auditors reasonably assures that the assertions made by the management are free from material error and the financial statements are reliable. Stakeholders whether to invest or not. The opinions made by the auditors are important to the financial security or whether the presentations of financial statements made by the management are in accordance to the principles and standards of accounting. Certainly, the quality of financial reporting rest on the assurance given by the accounting profession. Accounting is not Just simply recording, classifying, summarizing or totaling up financial values and the cycle goes on and on.
It’s not only Just confining itself by the given frameworks. According to Coinage (n. D. ), the modern accountant extracts meaning from the financial data: partly to help control its activities, partly to determine what resources are available for future development and partly to satisfy the needs of a wide range of different groups who need financial information for their own purposes. Accounting profession functions in many ways and its flexibility in our changing economic environment is vital for sustainability and stability to help industries grow and make the business world go round.