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Accounting Environment and Role in Economy Research Paper


Accounting professionals give information on the economic trends and operations of corporations or people. From a historical point of view, such pieces of information were necessary for insiders in organizations. Nevertheless, with the complex nature of the growing economy, several players required the information for different reasons.

In providing information to stakeholders, accounting professionals have to abide by the regulations stipulated within their professional bodies. For instance, ethical practices and transparency facilitate mobilization of both domestic and international investments, as they promote confidence among investors (McPhail and Walters).

Accountants must be ethical in their dealings to prevent negative economic development, as evident from the cases of Lehman Brothers and Enron’s collapse. Accounting helps in creating a sound investment environment, and, as a result, promoting financial stability. This essay discusses the accounting environment, its aspects, and contributions to economic development.

Accounting environment collects, analyzes, and communicates information regarding economics to concerned groups in order to enable them make informed decisions on the issues at hand. For example, different groups in society require accounting information in deciding on how to allocate the scarce resources effectively. The practice of accounting by people for people makes it an art that requires societal inputs and collaborations to promote sustainable economic development.

In line with economic development, the accounting profession assists in maintaining global standards, business standards, sustainability, aiding capacity building, and integrated reporting (Nrupalia par. 4). When a market has good financial architectures, it assures investors of productivity and sustainability. For this to occur, market players must be accountable for all resources put in infrastructural developments, hence the need for accounting in the entire process.

International accountancy bodies work in unison to provide investors with full assurance on the promising nature of national economies. For example, over 100 nations that have embraced the International Financial Reporting Standards (IFRS) recorded benefits in their economic signals. ACCA attests that global standards make it easy for comparison of transactions across borders and commands (Welch par. 3).

Companies that conduct transparent transactions using the global standards open-up their regions for receiving capital support. With the large pool of investors, the cost of capital for such companies goes down tremendously, hence increasing profitability and returns on investments.

In capacity building, just as physical infrastructure is essential in development and sustenance of economies, effective governance and financial reporting are also vital in developing a high level of assurance (Drever, Stanton, and McGowan). The coordination of activities among people, institutions, and standards has to be in a way that the accountancy capability develops to strengthen national and global economies.

For instance, Association of Chartered Certified Accountants (ACCA) has been engaging national bodies in improving their regulatory and oversight roles as a proficient organization. As an accounting body, ACCA has improved awareness on professional auditing of their World Bank-funded projects in order to help countries develop sustainable action plans (Welch par. 6).

Capacity building underpins development of specific skills and enhances capacity of individuals and institutions, thus helping in carrying out corporate reporting. The 1997/98 crisis that faced Asian-Pacific region changed the international financial reporting standards in order to enhance transparency and data comparison. The US implemented the Sarbanes-Oxley following numerous scandals that had occurred in corporations by 2000.

At the same time, Europe witnessed the introduction of the Eighth Directive to avert reoccurrence of such scandals in corporations. In introducing guidelines that prevent occurrence of negative effects that can hurt the economy, the accounting profession worked towards ensuring a stable and better economy for all (Drever, Stanton, and McGowan).

Also, the scandals made the World Bank and the International Monetary Fund (IMF) introduce Reports on the Observance of Standards and Codes (ROSCs) to assist in accounting and auditing of developments and priorities in different nations and regions. In the report, presentation and evaluation of weaknesses and strengths of frameworks and accounting practices were evident, such that it revealed regulations and their application in different nations.

The implementation of international accounting principles and standards assist in creating an effective market for all stakeholders. As an accounting body, ACCA plays critical roles in capacity building activities by providing technical support and resources for round-table discussions (Welch par. 7). Notably, during such conferences, the body supports UNCTAD’s efforts outlining the regulatory and legal structure and institutional frameworks, which are significant in economic growth.

Accounting bodies work towards developing sound financial standards and systems are based on strong ethical and governance framework, and high-quality auditing and accounting standards since they are vital requirements for economic development (Duska, Duska, and Ragatz).

When international investors understand the global standards, cross-border trade becomes prosperous given that the dealings remove reconciliation and translation costs. Moreover, the international regulations encourages transparency and easy comparisons for international transactions as well as reducing costs of capital for all companies as they have access to capital from a large pool of investors worldwide.

With high reliability and transparency rates in information provision, individual firms develop great confidence, which translates to low capital cost amidst reduction in interests rates and escalation in share prices. Global reporting standards that accounting profession has presented create easy comparability for world markets and even support labor mobility in which organizations can outsource for cheaper labor from different countries or companies.

On sustainability, accounting bodies promote sustainability reporting and transparency among corporate bodies. For ACCA, it believes that all organizations ought to report the impacts of their activities on the local society and environment and how they have put their policies into practice.

When entities report such effects credibly, they enhance stakeholder engagement and response to their concerns and requirements. Since sustainability is imperative to economic development, accounting bodies require companies to inculcate it in their business and corporate strategy. Such reports need frequent reporting and disclosure to stakeholders so that the sustainability process becomes central to both corporate and business decision-making.

Historical performances of organizations in the US and societal interventions show the benefits that accounting can bring in the economy of nations. The origin of modern accounting is traceable around the Gilded Age in the American society, where hardworking Americans developed innovative and creative spirits, which resulted in extraordinary economic boom. At the time, such innovative spirits went unfunded since exceptionally few individuals had economic strength to do so.

When Andrew Carnegie weakened a dam, which he had constructed in order to allow for more optimal fishing experience, the investment failed leading to loss of about 2,000 lives and $425 billion dollars in damages (Combs et al. par. 3). The Homestead incident, as well as the Haymarket Square Riot, resulted in public’s demand for enhanced regulations. As a way of ending privately owned monopolies, the Sherman Act of 1890 came into play.

During this period, organizations had to audit financial statements given that employees had began to gain more rights in the overall management of firms. For quality assurance purposes, constant auditing of firm’s financial statements became necessary. Clearly, investors still had no third party protection since employees were the auditors of financial statements. The whole concept was an internal affair of organizations, excluding outside stakeholders.

The implementation of the act across America resulted in prosperity in growth of companies in the 1920s. When firms started to realize slow cash flow, they began to search for new sources of capital from corporate stock issuance. Businesses relied on this option to expand their services and products to other customers in America.

Companies began to manipulate financial records with the intention of driving up stock prices, repay their loans and attract and retain investors. This became possible since organizations made the development of accounting standards a private affair, hence were unregulated and designed poorly.

This incident made lawmakers to include shareholders in sharing of such information to avoid malpractices emanating from other market participants. The massive growth in financial markets and past occurrences in the market had necessitated for regulations such that by 1933, the government passed the Securities Act and formed the Security Exchange Commission (SEC) in 1934 (Combs et al. par. 6).

The introduction of SEC in the American market streamlined the overall operations of corporations, as the commission could hold them legally responsible for any misconduct. American businesspersons and financiers shifted their ideological thinking from being bound to their own principles to being bound to a hybrid principle from SEC. Evidently, accounting played significant roles in eliminating unprofessional conducts in the American economy.

Afterwards, SEC began to establish accounting principles that provided general conceptual framework for the profession through American Institute of Certified Public Accountants (AICPA). The process made committees to come up with Generally Accepted Accounting Principles (GAAP) that guide accountants in making decisions on affairs that relate to their responsibilities.

As a way of sealing loophole of actions that one can take in case of a company’s departure from the codes, AICPA went on to create Generally Accepted Auditing Standards (GAAS), which has changing set of codes that enhances consistency and transparency in financial market reporting across the US. Such regulations helped Ireland in spurring its economy that had stagnated before 1984, as it was able to maintain low corporate tax rates to grow the economy by 6% (Combs et al. par. 10).

When the Republic of Ireland joined the European Union (EU), it paid a sturdy price during the financial crisis due to its failure to inculcate the ethical framework that could guide their engagements at corporate levels. The crisis led to loss of pay packages among government employees and increase in unemployment rate. Accounting principles help in managing such issues in a just and fair manner, and countries that have clear set of accounting principles continue to prosper economically.

When countries adopt a uniform and strong reporting system, international and domestic flows of resources is enhanced, as the move mitigates corruption and mismanagement of resources (Drever, Stanton, and McGowan). The Republic of Ireland made progressive steps in addressing the quality of corporate reporting from ethical perspectives to strengthen the domestic and international financial architecture.

Clearly, accounting helps in creating a leveled-play-ground for all businesses and investors by introducing specific regulations and guidelines that monitor market operations. The increased pace of globalization has made developing nations to introduce such codes and standards even though they face constant challenges to corporate reporting, such as weak legal systems and lack of human capabilities. Information disclosure in business assists in integrating sustainability ideas that are crucial in developing the economy.

In the development projects, accountants evaluate investment opportunities in line with the financial and non-financial benefits and aspects in order to ascertain whether a project is worthwhile or not. In the function of investment appraisal, accountants provide information that implementers can use to fund beneficial projects.

Therefore, the profession reduces instances of committing funds in non-beneficial investments, which only harms the economy of a country. Evidently, such pre-analysis supports growth of viable projects. Further, accountants have taken over the responsibility of preparing financial statements for business owners.

They also audit accounts of companies so that the information presented to the government and other stakeholders have high level of credibility. Therefore, they help business owners to track the performance of their dealings through preparation of financial statements and constant auditing of accounts. A prosperous economy must have credible information on the operations of businesses within their territories, and accountants are the real players in ensuring that credibility is paramount.

Fraudulent acts such as embezzlement and misappropriation of funds create an environment that is not growth-minded, thus hindering economic growth. Since fraudsters hurt the economy, restrictive measures have to be in place to monitor such acts to mitigate their occurrences. Accounting instills in its professionals internal controls that are effective in blocking loopholes that can aid fraudulent acts.

Currently, the accounting environment has included IT skills in their studies in order to produce all-round professionals who can mitigate fraud effectively in their areas of service. Information technology infrastructures have caused and aided fraudulent services, thus necessitating the need for inculcating IT in the study programs of accountants. The establishment and implementation of such functional internal controls in organizations is the work of accountants.

Undoubtedly, fraud remains a major threat to the operations of organizations, especially to financial institutions. Attempts by accountants to eliminate the vice results in economic growth. Moreover, accountants engage in proper financial management services to the companies and societies. Recovery from economic breakdowns, such as the 2008/2009 financial meltdown, requires technical skills that only accountants can provide.

The current climatic challenges that pose great threat to the sustainability of businesses have forced the accounting profession to widen their scope by determining costs that business ideas and resolutions have on the environment. Climate change has been a global issue, and businesses have focused their attention on sustainability such that their services have short and long-term goals on addressing the change.

From the perspective of environmental sustainability, it is unbeneficial to make huge profits and not care for the state of an environment in present and future dimensions. Environmental accounting has developed a conceptual framework that integrates the environmental, national income, managerial, and financial aspects (Baba par. 7).

Organizations that account for all their effluents and discharges are well placed to save on costs of expenses, as they are able to minimize waste from excess materials. Implementation of environmental accounting enables businesses to be productive in their service provision since they prevent environmental degradation, which can make them commit more funds in ecological management.

Accounting has an inclusive view of business operations by analyzing possible threats that can hamper economic growth and designing mitigation approaches to contain the situations. Therefore, environmental accounting assists in minimizing costs and negative effects that business operations might have on the environment (Henderson par. 1).

Economic development has to take into concern the environmental dynamics and the influence that businesses have on them. Accounting presents the cost analysis of their engagement and the advantages that arise. In the line of environmental protection, there are investments made for environmental protection and current operating expenses.

Business entities that identify, outline, and control the environmental costs and revenues can save money from diverse points and improve their external image easily. The move assures businesses of continuous existence due to the ease to attract and maintain new customers from their capabilities to access wider market. From this analysis, it is clear that accounting performs SWOT analysis in all business engagement to ensure inclusive development of the economy (Baba par. 9).

Accounting performs integrated reporting from a holistic approach to make stakeholders comprehend fully how organizations run their activities. Integrated reporting incorporates business model and corporate strategy to enable different audiences develop strong connections. A connection between short and long-term goals of a company offers confidence to investors in gauging the measurability, realistic and attainability nature of the objectives.

Accounting sets standards for businesses so that investors’ positions in the management remain mandatory. The development of accounting theory has helped in minimizing scandals that had been rampant before society comprehended the theory.

Financial Accounting Standards Board (FASB) has developed conceptual frameworks that have helped society to comprehend some kind of knowledge base and mitigate loopholes in specified areas (Henderson par. 3). In giving society necessary information on business regulations, accounting helps in strengthening the economy through collective responsibility in fighting vices that can harm development.

The profession’s practice in training its auditors and accountants to remain ethical in their dealings is an essential step in supporting economic growth (Duska, Duska, and Ragatz). In serving the public’s interests, these professionals support utilitarianism idea where unrestricted free market is a guarantee.

Accounting assists in ensuring that market controllers adhere to distributive justice in all their engagement. For example, the analysis of tax policy and financial reporting at Enron Company where some companies had been reporting high profits in order to gain public confidence in their operations, yet they were making loses and ending up experiencing minimal tax costs.

Violation of ethics is the sole reason for the fall of the great company since greed pushed the top executive in making profits irrespective of their dealings. Such loopholes have posed great challenges to economic development, and the accounting profession has even instituted the use of both the internal and external auditors in analyzing company operations. Auditors must maintain a high level of integrity so that the public can gain complete confidence in the roles of the profession in administering businesses.

Transparency remains a significant factor in the presentation of financial reports of companies. Accounting embeds itself on the economy, and its dealings affect the dynamics of the economy. Accounting professionals have also shifted their services from company-based to client-based in order to gain insights into the thinking and expectations of the public on the global economy. The shift in focus has made it possible for accountants and auditors to prevent negative economic development.

Works Cited

Baba, Mirela Camelia. “Advantages of Implementing Environmental Accounting within an Economic Entity.” University of Tibiscus. N.p. Web.

Combs, Madison, Nasser Mikdadi, Kevin Righi, and Aaron Sweger. “Accounting and Economic Development.” Virginia Tech: Pamplin College. N.p. Web.

Drever, Margaret, Patricia Anne Stanton, and Susan McGowan. Contemporary issues in accounting. Milton, Qld.: John Wiley & Sons Australia, 2007. Print.

Duska, Ronald, Brenda Duska, and Julie Ragatz. Accounting Ethics. John Wiley & Sons, 2011. Print.

Henderson, Khan. “Basics of Environmental Accounting | Chron.com.”Small Business – Chron.com. N.p. Web.

McPhail, Ken, and Diane Walters. Accounting and Business Ethics. New York: Routledge, 2009. Print.

Nrupalia, Roberts. “Accounting and its Role in society.” nrupalia on HubPages. N.p. 2009. Web.

Welch, Ian. “The Role of Accountancy in Economic Development.” Association of Chartered Certified Accountants. N.p. Web.

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IvyPanda. (2019, October 11). Accounting Environment and Role in Economy. Retrieved from https://ivypanda.com/essays/accounting-environment-and-role-in-economy/

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IvyPanda. "Accounting Environment and Role in Economy." October 11, 2019. https://ivypanda.com/essays/accounting-environment-and-role-in-economy/.

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IvyPanda. 2019. "Accounting Environment and Role in Economy." October 11, 2019. https://ivypanda.com/essays/accounting-environment-and-role-in-economy/.

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IvyPanda. (2019) 'Accounting Environment and Role in Economy'. 11 October.

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