International Accounting Profession and Accounting Information
This paper seeks to answer a number of questions: First it discusses whether the international accounting profession has lost its way and is no longer serving the needs of different users of accounting information in a manner which is appropriate and meaningful for the global business environment of today. Secondly, it seeks to identify the different user groups who require accounting information and how this information is provided for them. Finally, the paper discusses the status of accounting profession internationally and more specifically in the U.S. and the profession has been impacted by financial scandals in the recent past and the measures that have been taken in to offset the impacts of these scandals. The paper also discusses whether or not these measures have been successful – Accounting Profession and Accounting Information.
International Accounting Profession and User’s Needs
Accountancy involves recording, classifying and reporting on business transactions for a business (Bragg, 2018). It also involves measuring, processing and communicating financial information about business organisations. It is important that when reporting or communicating
accounting information, users of such information understand the information and can use it to make decisions. Members of the accounting profession should, therefore, ensure that accounting information is clear, understandable, and useful in decision making for users of the information.
The professional accounting profession has been proactive in ensuring that it caters to the diverse needs of users of accounting information in a manner that is meaningful to today’s business environment (University of Pretoria, 2016). This is partly evidenced by the fact that the profession has constantly adapted itself to the needs of different users of accounting information.
In response to these varying needs, different types and branches of accounting have been developed. Some of the types of accounting that have been developed in this regard include social responsibility accounting, management accounting, tax accounting, forensic accounting, financial accounting, governmental accounting and cost accounting (Siddiqui, 2011; Accounting Verse, 2018). Two main branches of accounting have also been established to cater to the needs of internal and external users of accounting information; management accounting and financial accounting. Internal users have direct and unconstrained access to accounting information of an organisation (Siddiqui 2011; Kimmel et al., 2010). External users, on their part, have limited and indirect access to this information and gain this information mostly through press reports and financial reports. Also worth noting is that cash flow statements were introduced in response to the need by some users of accounting information for information on organisations’ liquidity and sustainability (over and above their profitability information) (Simon Fraser University, n.d.). These adaptations and changes truly confirm that the international accounting profession seeks to provide accounting information to users in a way that is meaningful to today’s business
Accounting Information and Different User Groups
Different users need accounting information belonging to an organisation of interest to them for different purposes. Key users or user groups of accounting information include managers, employees, owners, shareholders, lenders, suppliers, customers, investors, regulatory authorities, community representatives, government, investment analysts, and competitors (Siddiqui 2011; Kimmel et al., 2010). The different user groups may be broadly classified into two groups; internal users and external users. While internal users such as owners, managers and employees have direct and unlimited access to the accounting information that belongs to an organisation, external users such as suppliers, investors, creditors and government have limited and indirect access to this information (Finkler and Ward, 1999). Internal users have access to accounting information that belong to a business through documents such as receipts, invoices, cash books, budgets, and ledgers. External users who are mostly interested with summaries of the organisation’s finances (as opposed to the minute details), often access information that covers an accounting cycle through four main documents or reports; the statement of financial position (balance sheet), income statement, statement of retained earnings, and cash flow statement (statement of cash flows) (Finkler and Ward, 1999).
Each of the four reports has a specific purpose. The income statement informs external users about the amount of money the organisation lost or made during a given duration. As noted by Kimmel et al. (2010), the balance sheet shows the exact accounts that the organisation has and how much every one of these accounts has. The cash flow statement provides details about what brought revenues to the business and how much of these revenues have been spent (Kimmel et al., 2010). On its part, the statement of retained earnings gives details on how part or whole of the net income presented on the income statement was invested back into the business.
Status of the Accounting Profession and Financial Scandals
Financial scandals have become common in many countries. Such scandals may result from the actions or inaction of different players including managers, employees, accounting professionals, or suppliers. Although there are countless cases of financial scandals that have been reported by media, some of the most notable are those involving Enron, Wells Fargo,
Cendant, and WorldCom (Michaels, 2018). The Enron case has particularly been important to the accounting profession as it has contributed to the adoption of changes in laws and accounting standards across the world. Investigations into the scandal revealed that the company’s executives overstated the company’s earnings, a factor that contributed to a failed merger. Several of these executives were found guilty of multiple crimes such as insider trading and money laundering (Michaels 2018).
Financial scandals have instigated changes to laws regulating accounting and the reporting of accounting information and accounting standards. In 2002, as an example, the Sarbanes-Oxley Act (SOX) was enacted in the US in response to the financial scandals that rocked Enron and WorldCom (Warren et al., 2012). As noted by Warren et al. (2012), this law was enacted as a measure to prevent the occurrence of similar scandals by regulating and standardising issues such as disclosure, corporate responsibility and independence. At the same time, education institutions have responded to financial scandals by teaching ethics and ethical principles as part of their accounting courses as noted by Titard, et al. (2004). The Sarbanes-Oxley Act has been criticised by some experts for being a “feel-good” legislation that was aimed at pacifying investors and members of the public while having little impact on the prevention of frauds and financial scandals (Coene 2018). The legislation has also been criticised for overburdening companies with paperwork and hefty implementation costs (in some cases running into hundreds of millions of dollars per year) as noted by Coene (2018). The act has especially been criticised for failing to prevent the 2008/2009 financial crisis that hit U.S. and several other countries (Verschoor, 2018). In spite of these criticisms, some experts note that the Act has helped strengthen corporate governance by increasing the accountability and responsibility of CFOs and CEOs in relation to financial disclosures and related controls and by increasing the engagement and professionalism on the part of corporate audit committees (Verschoor, 2018).
Although members of the accounting information have in some cases engaged in fraud, unethical activities, and financial scandals, members of the profession have also played an important role in detecting and preventing them in other cases. Without the input of professional accountants, many financial scandals would go undetected or would not be prevented. Furthermore, without their input, accounting standards would not keep improving. In general, organisations and countries in which adherence to accounting standards and laws is poor, several loopholes for
financial scandals exist and therefore cases of such scandals tend to be high, the converse being true. Basically, this shows that the status of the accounting profession has a bearing on financial scandals and frauds, especially at the organisational level.
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