Accounting as a Language Essay
Accounting as a Language
Accounting is often referred to as the language of business. It is a special-purpose tool for communication about the financial statements and the performance of a company. This can happen through written, natural language by selecting words from a standard vocabulary combining them in meaningful ways. These words are then organised into financial reports according to relatively flexible rules of presentation. Accounting dates back to 1494 when Luca Pacioli published a book called Summa de Arithmetic. It Around the 15th century, accounting records were found amongst ruins of ancient Babylon, Assyria and Sumeria.
It is suggested that people relied on accounting methods to record the growth of crops and herds. During the Roman Empire, accounting was quantified and listed as a public expenditure which included grants of land and religious offerings. Money to army veterans was also given. Current Issues affecting Accounting as a language The decline of the U. S dollar is a perfect example of an issue that affects accounting as a language. The objective of accounting theory is to provide a basis for the prediction and to explain accounting behaviour and its events. This theory assumes that a stable monetary unit is present.
Further decline in the purchasing power of the dollar has affected all realities and its associated languages. Events like this play a vital role as to whether a new language of bookkeeping needs to be implemented. Accounting language must develop theories which are rational. There may be instances where a procedure does not appear to be reasonable. An example of this can be seen with the determination of joint product and by-product costs. The reason why this raises doubts is because it is difficult to allocate costs in a way that accurate costs can be obtained.
In addition to accounting language theories being rational is its usefulness. Theories and conclusions are constantly being tested to measure the usefulness of the research provided. According to Harold G Avery, many systems have been neglected as it was not useful in expressing the relevant information to management. It is safe to say that no language will receive acceptance if it cannot be used to an advantage, as this information is relied upon to make sound business judgements and needs to be readily available. So how is this information translated to the users?
Ac as a language- Financial data is used to communicate the financial positions of a entity and then translates this to its various users. It is pertinent that in order to evaluate the financial results of the entity, it is necessary that the financial statements of that particular company with either its financial results of the industry or the past results. Ratio analysis is used to determine the status of the company’s ability to pay its short and long term debts. It can also analyze to determine the company liquidity and debts levels, these indicators are critical in determining the business ability to continue operations into the future.
IAS 1 prescribes the basis for presentation of general purpose financial statements intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs. IAS 1 does not specifically apply to the form, structure, and content of an interim financial report but many of the overall considerations as the need for fair presentation and consistency. Globally accounting is recognized as the tool for communicating the financial statements and performance.
Without a clear structure for accounting language, businesses and users alike would suffer economically as the financial statements would not be fair and true, which would be costly to us all. Accounting data is used to produce financial statements which depict a picture of entities profitability. This information enables accounting to translate this ‘foreign language’ into one that is understood by its users. This purpose of this translation is to aide sound business decisions. Users who benefit from this can be shareholders, management, government, financial institutions and prospective investors.