What does the quote mean and how it has changed the way accounting was perceived earlier:
The quote that accounting has been created to accomplish various desired objectives and is not based on any fundamental laws or absolute concept certainly a demeaning quote to the concept of accounting. It is suggesting that the accounting is primarily to manipulate accounts to show a desired state of financial performance of an entity. Thus, the quote certainly tarnished the huge importance of accounting in general. Irrespective of the nature of transactions that an organization carries out and the nature of its activities accounting is meant to keep record of all these transactions after summarizing and classifying these as per the accounting principles and policies. The quote though is demeaning to the subject of accounting however, that does not takes away from the fact that it is based on certain principles and policies that cannot be compromised to accomplish desired objectives of interested people (Macve, 2015).
It is important to note that economic environment, financial conditions, business operations and functions are different for different organizations. Apart from that the macro and micro economic factors have huge impact on the economic environment of a country. Different countries have different macro-economic and micro economic factors that affects the business operations of organizations in these countries. Thus, it would be impossible to have a single set of accounting standards and guidelines to maintain books of accounts and prepare financial statements of different organizations (Libby, 2017). However, the underlying principles and policies which are the foundation of Accounting still remain unchanged. The alternative accounting principles and policies for different items in accounting increases the flexibility of the subject.
It would be wrong to describe that due to such flexibility that enhances the quality of accounting and its usability for different organization as a weakness that allows business organizations to achieve desired objectives from accounting.
As example, as organization has different options to provide for depreciation on certain non-current assets. Use of straight line method of depreciation will certainly result in different amount of depreciation and resultant accounting profit for an organization as compared to use of reducing balance method. Similarly, in estimating the amount of provision for different items such as bad debt and warranty expenses an organization has liberty to choose different method. Thus, the accounting profit of organizations will be influenced significantly on the basis of accounting methods used by an organization.
Despite the above accounting still remains one of the most effective means to disclose the financial information of an organization. The perception of accounting has not been changed even after reading the quote. The usefulness of accounting and its benefits go beyond such quote. It is true that accounting is still evolving and in all probability it will remain an evolving subject since the world of business is changing (Walton, 2018). The accounting standards boards of different countries continuously looks for opportunities to improve the quality of book keeping system. Thus, the importance of accounting and its effects on disclosing financial information of an entity in summarized manner is unparalleled. Thus, the benefits of accounting far outweigh the short comings of the subject which Catlett highlighted in his quote (Handel, Valerio and Sánchez Puerta, 2016).
Accountants are conservative and pessimistic:
There are number of stereotypes that are attached with different professions in the world however, not all reflect the true character of different profession. The character of a professional is different from the profession that he / she is in. Often this simple fact is ignored while developing a particular stereotype and attached it with a subject and profession. In case of accounting it is often said that the accountants are conservative, pessimistic and boring. However, there is no facts to establish the stereotype. Let’s discuss how accounting has been associated with this stereotype and is the stereotype relevant to the profession (Linsmeier, 2016).
Accounting as a subject is based on certain concepts and principles. These are very much part of accounting but not accountants. The fundamental accounting principles are going concern, consistency and accrual basis of accounting. However, the current fundamental principles have come this far after constant evolution. Earlier conservatism was very much attached with the subject of accounting. It was a practice in accounting to provide for all possible expenditures and losses even if chances of such expenditures and losses are relatively less (Barbour and Lammers, 2015). The conservatism concept in accounting also provided that while accounting for an organization, no possible income and gains should be recognized in the books of accounts until unless it is absolutely certain that such income or gain would accrue to the organization and there is no uncertainty regarding the final receipts of any part of such income or gain (Whiting, Gammie and Herbohn, 2015).
As example the concept of prudence can be taken that required accountants to make provision for all expected losses and expenditures whereas no expected revenue should be included in the income statement until unless it is absolutely certain that the amount of revenue will be received by the organization. Hence, often the attitude of accountants is alleged as pessimist.
Though accounting over the years have undergone number of changes including provide for possible gains and losses on amount of assets and liabilities by use of fair value concept but the age old conservative stereotype has still remained with the subject. It is certainly not persistent however, as those who uses accounting are quite aware of changing landscape in accounting. The subject has changed from conservative approach to reflecting the true and fair picture of an organization and its business transactions. Thus, the subject is no more uses conservative approach to maintain books of accounts (Richardson et. al. 2015).
Example:
Accountants only deal with numerical figures hence, it is also alleged that they are boring. An accountant in X Limited is responsible for recording all financial transactions correctly in the books of accounts. Like any other professional an accountant also does his job, in this case of X limited.
Hence, there was definitely a valid reason behind creation of the perceptions of conservative and pessimism with accounting however, with evolution accounting as a subject has changed significantly. Thus, the stereotypes that accountants are conservative and pessimistic are not valid anymore. Also the fact that accounting is a subject and the accountants are professionals with expert knowledge in the subject but however, they also have a personal traits and character which are very unique to their own. Thus, it would be wrong to pain a professional with the character of the profession and vice a versa (Haynes, 2017).
“History creates past reality for us. The past is always being reinterpreted.” (Hines, 1988, p. 253)
Accounting is all about recording financial transactions in the books of accounts by properly summarizing and classifying these as per the accounting principles and policies. Thus, it is only after transactions have been effected by an organization or business that the process of accounting starts. Hence, in a way accounting is all about maintaining records for events that have taken place in the past (Brouard et. al. 2017).
There is no denying the fact that Hines is absolutely correct while stating that history creates past reality for us. Since the history documents the event that have taken place in the past and provides us reference in the future to evaluate the past and learn from the past if possible. However, the second part of the quote is quite interesting and directed more towards accounting, i.e. the past is always reinterpreted. Honestly, it depends whether past is reinterpreted or not on each subjects and the person reinterpreting (Djatej et. al. 2015). Accounting is a subject that documents the financial transactions of an organization, business or of an individual to prepare a composite books of accounts to reflect the effects of such transactions on the financial performance and position of respective entities. Thus, the second part of the quote that the past is always being reinterpreted is not justified when it comes to accounting and it’s utility. Accounting is based on certain principles and policies that are to be followed while recording the transactions in the books of accounts. It is not possible for the accountants to reinterpret the transactions as per their wish. The transactions have to be recorded as per the principles and policies of accounting hence, there is no room for scope that an accountant can use to reinterpret the past, i.e. the financial transactions of an organization. Accounting is certainly about creating reality on the basis of past events and transactions but it cannot be reinterpreted according to the wish of the accountants (Bartlett et. al. 2016). The principles and polices of accounting do not allow such leverage to the accountants to reinterpret the results of past transactions.
Example:
An accountant in an organization records financial transaction sin the books of accounts as per the supporting documents and vouchers. Hence, the accountants are only allowed to record the financial transactions that have occurred to prepare the books of accounts correctly. It is no doubt an exercise to record the transactions that has already occurred however, it is not to reinterpret the past rather it is about keeping the records of the past.
Objectives of accounting regulations and is the current approach sufficient to address these objectives:
Accounting is a subject that has evolved over the years and still evolving to make it better. The purpose of accounting is to record the financial transactions properly and correctly as per the principles and policies of accounting. The objectives of having accounting regulations includes the following:
Comparability of accounting records is the qualitative character of accounting records that enable the users of accounting information to compare the accounting records of an organization for a particular period with that of corresponding previous year and even earlier of the organization. Also the financial information recorded in the books of accounts can be compared with the financial records of different organizations to evaluate the performance and position of an organization with that of its competitors and peers in the market. It is only possible to compare the accounting information of an organization with previous years accounting information provided that one of the fundamental accounting principles, consistency, is followed in maintaining the books of accounts of an organization (Francis et. al. 2015).
The accountants are only responsible to maintain books of accounts as per the rules and regulations issued and developed for maintenance of accounting records. Thus, to claim that the accountants make the whole picture and there is no full picture is not quite write. Accountants only help in developing the picture on the basis of the financial transactions effected by an organization thus, not make the full picture. The full picture is made by the organization itself by entering into different transactions. The accountants are only responsible to maintain proper books of accounts on the basis of which the full picture shall be portrayed (Otavová, 2014).
Importance of clients in accounting and potential problems in maintaining accounts in public interests:
The clients are important in accounting as the purpose of accounting is to maintain accounts for the clients. However, that does not mean that in order to satisfy the clients the accountants will contravene with the accounting principles, policies and regulations. Clients are important as the accountants are appointed by the clients to maintain books of accounts. But it is important to understand that the whole objective of accounting is maintain proper books of accounts for an organization by following the necessary principles and policies of accounting. The concept of accounting is on the premise that it will help in maintaining proper records of all financial transactions effected by an organization. There is nothing that should come between maintaining proper records of financial transactions entered into by an organization and adhering with the accounting principles, policies and regulations, not even the client (Frezatti, Carter and FG Barroso, 2014).
The trust of public on accounting has increased over the years and this is mainly due to the ever improving quality of accounting records. Accounting records must correctly summarize and record the financial transactions as per the accounting standards and other regulations. Thus, it is mainly to maintain accounting for public interest that has made the concept so integral to business and users of accounting records. The concept of public interests enhances the quality of accounting and is not in conflict with the importance of the client. Rather the obligation to act in public interests and maintain proper books of accounts is in direct conflict with manipulation and falsification of accounting records to depict a picture different from the actual financial performance and position of an organization (Okoth, 2015).
Maintaining books of accounts in public interest will help to improve the quality of accounting records maintained. The accountants knowing the importance to act in public interest will not deviate from complying with the accounting principles, policies and regulations. The concept of public interest is one of the essential conditions in accounting that contribute to the ever improving qualitative characteristics of the subject. The accounting standards boards of different countries including the Australian Accounting Standards Board (AASB) are continuously looking to improve the accounting standards by keeping in mind the concept of public interests. Hence, the obligation to act in public interest does not raise any potential problem with the importance of clients in accounting.
Metonyms and metaphor article discusses the use of different nomenclature in accounting to describe various facets of accounting. It is essential to have knowledge of these words and nomenclatures to be able to understand the actual meaning of these depending on the place were these have been used. Accounting since the beginning has been a subject that has kept on evolving. Use of different metonyms and metaphor has made the subject even more effective. Majority of the users of financial statements do not have advanced knowledge of accounting thus, it is not justified to expect them to understand the different terms and words used in financial reports. Metonyms and metaphor can be used in accounting to make it easier for the relatively less knowledgeable users in terms of accounting knowledge get to understand the different items that are mentioned in financial statements without complexity. However, often the metonyms and metaphor have different meanings in different places thus, it is important to understand the use of these at appropriate places.
It is also up-to the accountants and management to make effective use of various elements of financial reporting to make it easier for the users of financial statements to understand the various elements in financial statements with ease. The objective of accounting and financial reporting must be kept in mind while maintaining books of accounts and preparing financial statements.
References:
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