Topic 1 What is ‘accounting’, what do ‘accountants’ do, and why?

Question 1

Accounting

Answer 1

The provision of information about aspects of the performance of, and resources held or controlled by an entity to a particular
group of people with an interest, or stake in the organisation, we can call these parties stakeholders (include internal and external).

Question 2

The role of accounting

Answer 2

The broad role of ‘accounting’, and of an organisational report is to inform relevant ‘stakeholder’s about the extent to which the actions for which an organisation is deemed to be responsible have actually been fulfilled.

Question 3

The role of reporting

Answer 3

Reporting provides a vehicle for an organisation to fulfil its
requirement to be accountable. Such ‘accounts’ do not have
to all be prepared in financial terms.

Question 4

Accountability

Answer 4

Accountability is concerned with the relationships between
groups, individuals, organisations and the rights to information that such relationships entail. Simply stated, accountability is
the duty to provide an account of the actions for which one is
held responsible. The nature of the relationships and the
attendant rights to information are contextually determined by
the society in which the relationship occurs.

Question 5

The two duties of accountability

Answer 5

1. To undertake certain actions to meet stakeholders
   expectation
2. To provide a reckoning or ‘account’ of those actions to the stakeholders

Question 6

Accountability model

Answer 6

Assessments or decisions that need to be made as part of
the process of reporting aspects of an organisation’s
performance: WHY, WHO, WHAT, HOW

Question 7

WHY

Answer 7

Why would an entity disclose information?

Question 8

WHO

Answer 8

Who are the stakeholders to whom the accounts will be

directed?

Question 9

WHAT

Answer 9

What types of disclosures will be made?

Question 10

HOW

Answer 10

How should the information be disclosed?

Question 11

Why would an entity decide to disclose information? examples

Answer 11

• to comply with legal requirements;
• an ethically motivated desire to ensure that the organisation benefits
society, or
• does not have a negative impact on society and the natural environment,
through to
• an economically focused motive to use reporting to protect or enhance
owner/shareholder value.

Question 12

Who are the stakeholders to whom the accounts will be directed?

Answer 12

• Motivated by managerial reasoning and strategising
reporting to those who hold and exercise the greatest
economic power
• Motivated by ethical/moral reasoning the reports direct towards those stakeholders most affected by the operations of the organisation

Question 13

What types of disclosures will be made ?

Answer 13

This all really depends upon judgements we make about the organisations responsibilities and accountabilities. The broader perspective we take of organisational responsibilities and stakeholders, then the broader our ‘accounts’ become.

Question 14

How should the information be disclosed?

Answer 14

The production of an account/report that addresses or stakeholders’ information needs. Various reporting frameworks and conventions are available and can address different aspects of performance

Question 15

The changing role of accountants

Answer 15

What an ‘accountant’ does has changed. Traditionally an accountant primarily focuses on financial performance and financial position Now, it is much more than that and involves facts such Social and environmental performance as well as climate change. Professional accountants must be able to meet current needs
and anticipate emerging demands.

Question 16

The following drivers have had a major impact on accounting

profession

Answer 16

• Increased regulation and stronger governance
• Globalisation
• Technology
• Changing societal expectations

Question 17

The different responsibilities of organisations

Answer 17

Because different organisations will have different purposes
or goals, and different stakeholders (who are those able to affect the organisation, or those that are affected by the organisation), then they can be considered to have different responsibilities.

Question 18

Examples of aspects of performance that accounting should address

Answer 18

Financial
Social
Environmental

Question 19

Stakeholder engagement

Answer 19

What types of information will be disclosed and what issues

the ‘accounts’ should address: involves dialogue between the organisation and its identified target stakeholders

Question 20

Can you think of the factors that influence the (changing) information required
by organisations to be successful?

Answer 20

These factors might include changing demands by consumers (consumerism), globalisation (access to different markets for production and distribution of goods/services - the global hamburger; diverse cultural issues), technology, global warming and the related environmental issues, widening
social classes.

Question 21

Non financial accounts

Answer 21

If an organisation is considered to be accountable for its water
consumption, or its greenhouse gas emissions, then such ‘accounts’ may be presented in physical (non-monetary) terms. They might be used both internally and externally.

Question 22

Non financial accounts example

Answer 22

If a company is considered to be responsible for the people who are making their
products in developing countries, then it might produce ‘accounts’ about how the organisation is ensuring that factories in developing countries are safe for the
employees. Again, these ‘accounts’ might be used both internally and externally.

Question 23

Examples of possible non financial accounts

Answer 23

carbon emissions; use of water; employee accidents; oil spills; injuries within supply chain?

Question 24

Why would an entity decide to disclose information?

Answer 24

an organisation would need to consider whether it is reporting (or providing an ‘account’) because it believes it has an accountability to various
stakeholders, or whether, it is reporting because it wants to win the support of
powerful stakeholders.

Question 25

decoupling

Answer 25

It should be noted that although an organisation might publicly identify their
stakeholders to include certain parties-this is their ‘public position’. It could be quite
different to what occurs internally. This is the notion of ‘decoupling’.

Question 26

If an organisations primary objective is to maximise profits then the accounting/reporting will fixate on

Answer 26

Financial measures

Question 27

If an organisation has an objective of reducing greenhouse gas emissions, then the accounting/reporting will focus on

Answer 27

emissions, improvements in emissions, targets, and

so forth.

Question 28

Organisational objectives influence the form of

accounting undertaken

Answer 28

If an organisation such as a university has a goal that research publications must
be increased then this will impact what information is collected and what accounts are generated.

Question 29

Changing role of accountants example

Answer 29

For example as different stakeholders become more and more concerned about the
social and environmental performance of an organisation, then the accountant has
needed to develop skills in this area, and the profession needs to make sure this
becomes part of their members’ knowledge requirements.

Question 30

Changing role of accountants and climate change

Answer 30

As an example, with growing concern about climate change many organisations are now required to produce information about their carbon emissions and particular accounting techniques have been developed to measure the emissions. Years ago there was no such ‘accounting’.