Topic 1 What is ‘accounting’, what do ‘accountants’ do, and why? Flashcards
Accounting
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).
The role of accounting
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.
The role of reporting
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.
Accountability
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.
The two duties of accountability
- To undertake certain actions to meet stakeholders
expectation - To provide a reckoning or ‘account’ of those actions to the stakeholders
Accountability model
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
WHY
Why would an entity disclose information?
WHO
Who are the stakeholders to whom the accounts will be
directed?
WHAT
What types of disclosures will be made?
HOW
How should the information be disclosed?
Why would an entity decide to disclose information? examples
• 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.
Who are the stakeholders to whom the accounts will be directed?
• 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
What types of disclosures will be made ?
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.
How should the information be disclosed?
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
The changing role of accountants
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.
The following drivers have had a major impact on accounting
profession
- Increased regulation and stronger governance
- Globalisation
- Technology
- Changing societal expectations
The different responsibilities of organisations
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.
Examples of aspects of performance that accounting should address
Financial
Social
Environmental
Stakeholder engagement
What types of information will be disclosed and what issues
the ‘accounts’ should address: involves dialogue between the organisation and its identified target stakeholders
Can you think of the factors that influence the (changing) information required
by organisations to be successful?
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.
Non financial accounts
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.
Non financial accounts example
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.
Examples of possible non financial accounts
carbon emissions; use of water; employee accidents; oil spills; injuries within supply chain?
Why would an entity decide to disclose information?
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.
decoupling
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’.
If an organisations primary objective is to maximise profits then the accounting/reporting will fixate on
Financial measures
If an organisation has an objective of reducing greenhouse gas emissions, then the accounting/reporting will focus on
emissions, improvements in emissions, targets, and
so forth.
Organisational objectives influence the form of
accounting undertaken
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.
Changing role of accountants example
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.
Changing role of accountants and climate change
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’.
