The Importance of Accounting Essay
The Importance of Accounting
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.
I respectfully disagree with the above statement.
If anything, the accounting profession and its importance in day to day management of businesses has increased in the past decades. The information provided by company financial snapshots is a vital tool in managing the day to day, monthly and yearly affairs of any business be it large or small. The information provided monthly by accountants aids both the financial controllers and management in assessing where and how well they’ve performed historically, and importantly aids in management decisions of where to focus resources and manpower for current or future needs. Cote (2002) states that “the fundamental purpose of accounting is to provide accurate, useful and timely financial information.”
The importance of accounting within every business should never be underestimated or disregarded. In every efficient hotel and business it is the system used to decide at what rate to sell a room, cost of sales or cost of goods sold (COS or COGS) are calculated giving insight into profits or losses within certain centers such as rooms, food and beverage cost, gift shop sales or tours.
There are many users of financial and accounting information within the business environment. While the relevant information can be used throughout the business as a means of assessing departmental performance, mostly it useful for upper level management and how it is chosen to filter down can vary from organisation to organisation. When the accountants of an organisation prepare the information it is of great relevance to them to know exactly how this information will be processed and by whom. These different groups are known as user groups and these can consist of many different entities and they are clarified below.
1.Customers – For larger enterprises who publish public financials this could aid in seeing whether a business is performing well.
2.Competitors – Again with public financials this could aid competitors in seeing if there is potential for market growth in a newer niche market, or else comparing their performance to that of a competitor as a “benchmark”.
3. Employees – Would find this information useful, and it is important for the sake of transparency that at least a portion of the financials are discussed and reviewed with staff on a regular basis.
4. Government – Needs to know if the correct amount of taxes have been paid, what the standing of the business is ie whether the government has to lend support, as well as monitoring for any unethical or erroneously reported statements.
5. Community Representatives – Should be aware if the company can continue to provide employment, are they doing well enough to expand their size, can the company perform well enough without the aid of the community?
6. Investment Analysts – Importantly provide the information that allows potential investors to decide whether to invest in the business.
7. Suppliers and Lenders – Need this information to decide whether to supply lines of credit or loans, or when to call in their loans.
8. Managers – Past, future and present performance, one of the most important tools for any manager.
9. Owners – Decide based on the company’s performance whether to offer rewards, or to sell a portion of the business.
The first two points could be applicable to larger enterprises, however in the hotel and hospitality industry, especially in Belize, allowing customers or competitors access to this information would not be tolerated. In a highly competitive industry allowing “outsiders” access to this information is tantamount to harming your assets. Point number five would also be highly unlikely in many fields where owners and managers prefer to let only a select few have access to privileged information. While these users may apply to the broader spectrum of businesses it can vary greatly.
Most importantly in accounting are ethics. The accountants and people within the organisation have a moral and ethical responsibility to ensure that the data is accurate, to report the truth and to report any suspicious activities. Within small or medium sized enterprises (SME) or large multinational enterprises (MNE) employees, shareholders and stakeholders can be affected in adverse ways such as job losses, ruined public image of the business and even closure of the enterprise. The actions of a few unethical people can impact the entire organisation, and as is the case in today’s modern world even have a cross country or global impact that can leave enterprises reeling and even an impact on the economy of the country.
In recent years there have been many financial, accounting and auditing scandals that have rocked the world resulting in losses of billions of dollars. Amongst the most famous of these is the Enron debacle of 2001 with losses of over twenty five billion dollars reported. This was due to false financial reporting and as a result of this discovery even the auditing firm of Enron, Arthur Anderson, was forced to close, the fact that this must have been known by many people is of concern, a mass cover up with disastrous consequences.
Within in Belize there has recently been a scandal concerning the renationalisation of the electricity company, Belize Electricity Limited (BEL). “On Monday, June 20, 2011, the Government of Belize (the “Government”) passed legislation and then issued an order, delivered on Tuesday, June 21, 2011, to expropriate the ownership interest of Fortis Inc. (“Fortis” or the “Corporation”) /quotes/zigman/17264 CA:FTS -0.18% in BEL and dismiss the Board of Directors of BEL, including nominees of Fortis. Compensation remains to be determined.”
While all the facts have yet to be discovered it is concerning that the communication and energy providers to Belize have both been nationalised within recent months. These are seemingly snap decisions made by powers in the Government of Belize that have an impact on the well-being of its people. There has been very little in the way of financial reporting or transparency. It was a matter of days between when the Prime Minister announced his intent to re-nationalise to when it occurred. These events are distressing when tourism is one of the major sources of revenue and the country needs to be shown in a positive light.
In light of these disturbing takeovers, I am of the opinion that huge international corporations are more subject to international standards and regulations than very small countries producing sugar and citrus. Larger corporations have budgets and financial backing that make Belize’s budget seem minuscule in comparison. The controls are set in place after the events occur to protect the assets and reputation of the businesses, in order for the business or conglomerate to be taken seriously on the international stage. So while these measures have been successful to a certain degree, it cannot be stated with certainty that they will be entirely successful within a smaller government owned society.
1. Cote, Raymond – Basic Hotel and Restaurant Accounting – 2002 Chapter 1 pages 3 to 29 2. Hald, Tim – Published May 31st 2010 Article titled – Accounting Ethics – The Importance of Ethical Practices in Business and Personal Finance available ONLINE at http://ezinearticles.com/?Accounting-Ethics—The-Importance-of-Ethical-Practices-in-Business-and-Personal-Finance&id=4376913 Accessed 10 July 2011
3. Thomas, Cathy Booth – Published June 18th 2002 Article titled – Called to Account – available ONLINE at http://www.time.com/time/business/article/0,8599,263006,00.Accessed 10 July 2011
4. University of Liverpool – Lecture Notes – Managing Resources
5. University of Liverpool – Managing Resources Third Edition – Pearson
6.http://www.marketwatch.com/story/government-of-belize-expropriates-fortis-ownership-of-belize-electricity-limited-bel-2011-06-21 ONLINE PRESS RELEASE June 21st 2011 accessed 20 July 2011
7. The Economist – 30 June 2011 Article available ONLINE entitled “Telecoms in Belize – Back to the drawing boards – The courts overturn a controversial nationalisation” http://www.economist.com/node/18898155 Accessed 20 July 2011