In a business world of great challenges especially where survival of business organizations is not anchored well on the established conventions and financial systems fail to guarantee it many debates arise as to whether systems like accounting are actually important to an organization to manage its resources proficiently. One is tempted to look back to what happened to such companies as Enron, Vivendi and WorldCom. Such occurrences have triggered universal accounting standards like the IFRs and International Accounting Standards. Thus it is argued that business world without accounting process would not stand to get any public confidence hence less market loyalty (Seeley 2005).
Seeley (2005) contends that the very nature of the executive leadership in a big organization like the corporation demands the presence and help of accounting for several reasons. He points out that first of all, such a big organization incurs hidden costs which must be measured lest they go beyond absorption and become of material concern to the company. Secondly, this organization is vast in most of its operations and hence it must measure its productivity. Another issue is that the process of the accounting department is important since by recording the financial status of the organization, it makes it easy for the executive to refer to such information whenever they are assessing the level of fulfillment of the strategic goals set; otherwise how would the benchmark be established? If the organization is dealing in many products or lines it would not be, without the accounting process, possible to know which department, line of production or particular product is more profitable or which is leading to huge losses. This means that the organization would be surviving blindly as far as these issues are concerned. And of course frauds may be little difficult to check (Rajan et al 2002).
Asset management and management accounting are imperative to ensure that the organization not only maximizes on the returns from the assets but it invests in most viable investment options. The data derived from the accounting process helps the planners in measuring the productivity as well as the quality of investments they make hence offering the blue print for direction. Accounting is also important in helping the business or organization to know its level of responsibility to the society and government. For instance, through the accounting process, the business will be able tom know the amount of returns it has made or the level of losses incurred hence know its tax liability. In addition, there are other users of the information of the accounting process who should not be ignored especially if the business wishes to inculcate confidence in them. Apart from the government, management, shareholders and the planners mentioned, the other users include the external auditors and customers as well as consumer groups will be interested in the information. Therefore the accounting process is a significant part of any organization whether it is small or big.
Well, most of the big organizations are owned by shareholders and these investors will need information which may not be available without the accounting process. And if the returns are to be distributed back to them it would be difficult to establish exactly the amount to distribute to them without establishing the total returns that accrue to their capital. This would be possible through financial accounting ratios for instance EPS (earnings per share ratio), Return on Total Assets (which is same as Earnings before tax /Total Assets) and Market value of common stock. Nevertheless, those are the big organizations, what about the small ones. Take an example of sole proprietorships and even the middle-sized organizations. Such entities have totally different environments under which they operate (Rajan et al 2002).
Transparency, assurance, control and safekeeping ring in mind as key words that must be considered in ensuring a standardized accounting process which can be analyzed within the same parameters in any organization; small, big or medium anywhere around the world. Nonetheless, analysts contend that the profession should do more to give confidence by coming up with comprehensible and precise rules which may be applied worldwide. Therefore, the process of making accounting rules global is extremely significant owing to the globalization of business. This globalization also permits every person involved in financial management to build [more accurate] judgments and attain a higher level of confidence when time for strategic decision making comes. One of the most daunting areas of discussion about the accounting process on whether accounting is necessary for effective management of an organization’s assets is that there is a great problem when it comes to globalizing the rules which govern accounting profession. When scandals like those that were witnessed at Enron, Xerox and others were critically analyzed, it was actually found that the real cause of the fraud was not a failure in the accounting process itself but a failure of the involved systems to put the laid down procedures seriously into consideration (Seeley 2005).
In conclusion, accounting is necessary for effective and efficient management of an organization’s resources as it aims at proficient allocation of these resources to ensure productivity and quality in the returns that accrue to them.
Seeley, Dwight W. 2005. Globalizing Accounting. New York: Elsevier
Rajan, M. V., Larcker, F. D. and Baiman, S. 2002. Accounting Process and the Executive in the Organizational. Journal of Accounting Research: 205-229