unit 5 accoubting theory

Importance of accounting in society

measurement

Efficient location

Evaluate alternatives and perhaps reduce uncertainty

Reports reality

Objective

Language

Measurement

It is used as a measurement that allows us to see how much resources we used and If we met profit target and how well company is performing etc

Efficient allocation

It allows us to allocate resources effectively if there’s a limited amount

Evaluate alternatives and perhaps reduce uncertainty

If you are shareholders want to look at accounts of 2 companies and evaluate to decide which one to invest

Reports reality

Gives us infornformetion on how well the company is performing whether they giving back to the economy and the reality of the company

Objective

Objective information (based on facts) as has to be recorded with double entry etc and also verified by auditors

Language

for example allows someone like government to understand how the company is doing and can be used as a language to different users so different users can also use it and can be used to compare since all companies use the same process

What is meant by accounting is a socially constructed

the idea that accounting is not purely objective it is shaped by society and the needs of different people who use financial information

Accounting is socially constructed

Connects different users

Social force

Communicate/connect individuals

Subjective

Connected different users

It connects different people and uses as a language

Social force

Accounting is decided by social norms and changes to meet changing demands and complexity of the business and accounting evolve as a result of more or changing user needs(so accounting driven by social force)

Communicate/connect individual

Financial statements acts as a common language that allows people with different interests to understand and organisation financial position

Subjective

Accounting involved judgement and choices for example business may need to estimate depreciation provisions etc

What is reality construction

Perception of economic reality which shows the economic health(financial position)of a company and how well the company is doing so your constructing the true story of the company

What can reality construction be based on

Subjective judgements, norms and standards, social and institutional influence

Subjective judgement

Could use there own judgement when recording man’s measuring some items in account and deciding which method of measuring to use such as reducing balance or straight line depreciation method

Norms and standards

The normalised way of measuring accounts or recording transactions the standards and the regulations for recording and transactions

Social and institutional influence

What do the social norm expect accounting to be or what the institutional body expect the report to be

How is reality construction done

language and image

Shaped by human practices and interpretations

Language and image

It is done through language and images so when your constructing a economic reality of a company your creating a language of a communication to other stakeholders

Shaped by human practices and interpretations

It is shaped by human practices such as what other accountant be doing and what accountant rules and regulation for this country is to report companies performance and what do we expect users to interpret it

What ox expected when you are doing a reality construction

It is expected that you have a coherent Knowledge of what’s going on and how to showcase what is going on in the company because of the true and fair concept which means that everything is true and the accounts prepared are fair

Accounting as a craft

Subjective

Users discrete accountant on there needs

Subjective

Accounting as a craft is subjective and depends on the user who’s presenting/creating the information so based on the individual knowledge and based on the rules and regulations set

They also use prediction(ratio analysis) to predict future of company

Users dictate accountant on there needs (the needs of users determine what information accountants should provide

Users can influence data in a more manipulative way in order to meet the need of users