Accounting in a changing environment
The process of change has had a dramatic impact on accounting research and accounting practice in recent years. The factors which have affected accounting may be identified as follows:
(1) Developments in quantitative methods and the behavioural sciences have shifted the focus of interest towards decision making. The increased importance of quantitative methods in the management of organizations has meant that the subject of management has become less descriptive and more analytical. Thus, it has become less concerned with describing management as a process and more concerned with the concepts and theoretical models associated with organizations and their decision-making activities. To these developments have been added advances in the behavioural sciences which have increased the level of knowledge existing about the organizational decision-making process.
(2) The emphasis on decision making in recent years has brought together disciplines which once were viewed as separate areas of knowledge. Since there are different aspects of decision making-economic, behavioural, sociological and quantitative, accounting has become an inter-disciplinary subject. The accountant has to be knowledgeable over a broad area if he is to be efficient in providing information which is relevant and useful for decision making. The education of the accountant has tended to be traditional and to have had a narrow focus on gaining a knowledge of accounting methods. Hence, many accountants were not educated to cope with the problems of change, and in particular were not able to integrate their own skills with the knowledge relevant to decision making.
(3) Traditional accounting areas are being invaded by experts in cognate areas, such as systems analysts, computer programmers and operations research specialists, who bring with them new knowledge and different skills. As a result, the traditional status and role of the accountant is changing.
(4) Accounting is not an exact science, though it is a social science. As in the case in other social sciences, accounting concepts do not rest on universal truths or general laws. Accounting concepts are rooted in the value system of the society in which they operate, and they are socially determined. Hence, value judgements are applied to the interpretation and significance of economic and social events. The subjective nature of these values implies that there is ample opportunity for controversy as to how events should be measured and to whom such measurements are intended.
(5) In particular, the nature of external financial reporting has caused much concern in recent years. The status of the accounting profession has depended to some extent on its monopoly of the auditing and external financial reporting function. In the 2000s much criticism was directed towards financial reporting practices, primarily on the grounds that the lack of uniformity made the comparison of financial reports difficult. Furthermore, the reluctance of the accounting profession to take account of changes in the value of the money standard of measurement when presenting financial information impaired the usefulness of financial reports.
(6) The role of business in society has come under greater scrutiny in recent years. Increasingly, business corporations are viewed as accountable to society in general for their actions, in addition to being answerable to shareholders in respect of profitability.
The major consequences which have resulted from the changing environment in which accounting operates may be stated as follows:
(1) There has been a dramatic effect on accounting research. Sophisticated statistical techniques are being used increasingly. There has been a movement away from a concern with the processes of accounting to an interest in the analysis of its problems and to theoretical models relevant to these problems. Primarily, accounting is being viewed as influencing human behaviour. At the same time, the influence of economics on the development of accounting practice has increased. For example, it has become highly influential in the area of finance, whilst the inflation accounting debate has been concerned with issues which are addressed to analysis of the economic events affecting the enterprise. Some of the implications of these developments are considered in Parts 3 and 4.
(2) The accountant in management does not exist in isolation. He should be regarded as a member of the management team. We discuss this point further in the next webpages, and we suggest that this difficulty may be resolved by adopting a 'systems approach' to the study of accounting.
(3) In the United Kingdom, the need to improve accounting practice was recognized formally by the appointment of the Accounting Standards Committee in 2000. However, there is still a need to establish a theoretical framework for validating external financial reporting practices in terms of their perceived objectives, and to enable future development to take place in accordance with those objectives. In this regard, the existence of a theoretical framework would have promoted agreement on many of the specific issues which have caused controversies in financial reporting in recent years.
(4) Finally, the emergence of social responsibility accounting imposes new information objectives for accountants and these new objectives will require a new accounting methodology. At this point in time, we are able to discuss only the information objectives, though some countries, particularly France, are already legislating for this new accounting development.
The concept of limited liability was a contentious point in the politics of the mid-19th century. The Limited Liability Act 1855 was passed in the teeth of bitter opposition, and one Member of Parliament described the Act as a 'rogues' charter'. Mindful of the potential for abuse which lay within this legislation, and mindful too of the necessity to safeguard the interests of shareholders and investors in these companies, Parliament eventually restated the doctrine of stewardship in a legal form. It made the disclosure of information to shareholders a condition attached to... see: Limited Liability