accounting

Accounting and its role in society
Accounting is concerned with collecting, analysing and communicating economic information. However in order to develop a broader understanding of accounting and the central role it plays in society, we need to consider it from a social perspective.
Individuals in society coexist by establishing relationships with each other. Another way of viewing society isby segmenting it into different groups or arenas, for example the social, economic, organizational and political. In order to function effectively, these different arenas need to communicate and it is accounting information that facilitates this communication. According to Kyriacou accounting information serves many important purposes, for example assisting users in making informed decisions, inrelation to the effective allocation of scarce resources.
Therefore accounting information can be seen to be a potent influence in society, which affects everybody. This is illustrated by the National Coal Board case were the measurement of accounting profit was used to justify the closure of coal pits, causing an impact on electricity prices, jobs and taxes.
Accounting has a long history and asdemonstrated by Hines it is seen as being socially constructed i.e. it is practiced by people for people and therefore it is more of an art rather than a science. Unlike other professions, which have a body of theoretical knowledge to depend on to make decisions, accounting has evolved as a craft with few rules and little to no theoretical knowledge underpinning its practise and function.Accounting traditionally has played a stewardship role as depicted by Morgan when he uses the image of accounting as a historical record to demonstrate accounting as an extension of the owner’s personal memory. However society and business practices have changed. The growth of global business and the emergence of new sectors such as ecommerce have lead to complex transactions being undertaken. This inturn has unearthed problems of subjectivity and inconsistency in the application of traditional accounting techniques. For example, changes in the nature of business assets to include intellectual property or the use of leasing have lead to the question of how to account for these types of transactions?
This fundamental change has resulted in loopholes in accounting and lead to manipulation andscandals.
In order to minimize loopholes the accounting profession has invested a huge amount of time and money in injecting theory into accounting, in a bid to provide a framework for the application of accounting techniques as well as provide meaning to traditional accounting practices. However as mentioned earlier accounting is an art not a science and so the development of theory thoughbeneficial is problematic in practice.
One of the major attempts by the accounting profession to minimize loopholes is with the development of the conceptual framework. According to O’Regan the conceptual framework can be defined as:
“A unified and generally accepted set of theories and principles that provide a foundation from which specific practices and methods can be deduced.”
In other words aconceptual framework can be considered a religious holy book for accounting, containing definitions and concepts that are central to its practice.
The pioneers of the conceptual framework have been the (FASB) Financial accounting standards board. Their progress has encouraged and generated further interest in the conceptual framework, which has lead to the IASC and ASB commissioning there ownprojects and developing their own version.
Although the conceptual framework project has been a lengthy and expensive process, in my opinion it is a step in the right direction as it provides a foundation for some kind of knowledge base and also reduces loopholes in certain areas. For instance in the elements section key concepts have been defined for example, what constitutes an asset or liability....