Accounting and accountability shares a lot of common properties even though in practice accounting is an activity with standard processes while accountability is one of the main values and principles that form the foundation of the conduct and custom of accountants, auditors and other professionals. Chambers (2006, p.234) asserts that the two terms have a common root and that they have other properties in common. Owing to the close relationship between the two it is therefore important that we start by finding out what is accounting as well as accountability.
Accounting can be understood in two senses, that is, accounting as an academic discipline of study and accounting as a human activity that involves application of accounting knowledge, skills and attitudes in a business, organizations and in public bodies. That is accounting the profession. Accounting as a discipline refers to wide field of study that deals with a wide range of practices from the simple art of book keeping or recording of business transactions, preparation of financial reports and statements, cost accounting, inflation accounting and the use of information from the reports and statements to make sound business and public management decisions (Fleischman, Radcliffe and Shoemaker 2003, p.3; White and Hollings worth 1999, p.15).
Accounting as a human activity is concerned with giving an account Chambers (2006, p.324). An account in this context is both a record and history of events that have taken place within a given business, organization and public body as well as an explanation of those events and actions by an accounts manager(s) or accountant. Chambers further elucidates that giving an account presupposes the existence of an addressee or class of recipients.
Accountability is a feature of relations between particular people and other separate and distinct people Chambers (2006,p. 234).However, the two groups of persons have particular responsibilities towards each other which they are expected to carry out in a manner that is not only acceptable and in tandem with societal norms but also lawful. A person is said to be responsible or accountable if he or she is liable to judgment or can be called upon by others to give an explanation of his or her actions and actions of those under his or her guidance and control. Note that individual junior managers in a particular business organization, public body or non-profit organization are accountable to the senior management who are in turn responsible to the stakeholders, shareholders and donors.
Olson, Humphrey and Guthrie (2001,p.507) argue that human beings are perpetually engaged in making and giving explanations to others and to themselves about who they are and what they are or have been doing. As such, accountability especially in genuine democratic cultures is a characteristic of virtually all human groups’ right from family which is the basic unit of the society. At this level of human interaction parents are responsible to their children and in turn children are accountable to their parents who provide for their basic needs. This quality of accountability carries on up to the highest levels of human interaction in the society.
Accounting and Auditing in Public and Private Bodies
We have seen in the previous section what generally accounting refers to as well as the general concept of accountability as it applies to human relations at various levels of the society. In this part, we shall look at the processes of accounting and auditing in public and private bodies with the view of finding out the distinctive characteristics of the accounting techniques involved in the two sectors. It is important to note that even though there are accounting techniques which are applicable in both the public and private sector, accounting methods in public and private sectors differ White and Hollingsworth (2001, p.15).
Most of the differences in the accounting methods in the two sectors arise from their deferring objectives. On one hand, the main objective of the private sector is profit maximization and retention of solvency. As such the activities of private business organization including accounting which is the major department that deals with all of the financial affairs of an organization are geared towards economic utilization of resources so as to maximize profits.
On the other hand, accounting in public sector as well as in non-profit organizations aims at ensuring cost-effective utilization of government donors’ financial, physical, technological and other forms of resources in provision of services to the public and the under-privileged groups of the society targeted by the Non-Governmental Organizations. However, in both private ,public and not-for-profit sectors the end results of accounting as a process and organizational activity is usually financial statements and reports which act as the starting point of auditing.
The end result of the accounting work also forms the fundamental basis for making sound decisions related to investment, trading on credit by suppliers, taxation, replenishment of the stock and funding by donors in the case of non-profit organizations and government projects.
Auditing refers to looking at or examining how an organization works. According to Batlibio as cited in Kumar and Sharma (2005, p. 2), auditing is an intelligent and a critical analysis of the books of account of an organization together with the documents and receipts from which they are prepared, for the purpose of determining whether the working outcome of a definite period of time as demonstrated by the accounts and the financial statements revealed by the Balance sheet are truthfully determined and presented by those in charge of compilation.
Auditing is concerned with the legitimacy and acceptability of financial statements and reports prepared by those in charge of financial affairs of a business organization, a non-profit organization or public body. There are various types of auditing such as financial auditing, managerial and -organizational auditing as well as transactions and systems auditing. Two or more of these types of auditing are usually undertaken at the same time. Auditing is a common practice in both public and private sectors. Due to the differences in the objectives of the two sectors, what auditors look for in private sector is different from what auditors look for in public books of account.
As mentioned earlier, the main objective of the private sectors is profit maximization as well as remaining solvent while the main objective of the public sector and the non-profit organizations is provision of services at the most cost effective prices to the public and the underprivileged target groups respectively. However, the professional principles directing auditing as well as the processes share a lot in common.
Generally Accepted Accounting Principles (GAAP)
Virtually all professionals have universal recognizable professional principles which all serious and careful professionals are supposed to observe. Professional principles aims at safeguarding the reputation of the profession as well as assisting the professionals do their work in accordance to professionally acceptable custom. Gibson (2008, p.1) states that “Generally accepted accounting principles (GAAP) are accounting principles that have substantial authoritative support.”
Gibson further asserts that an accountant must be conversant with acceptable reference sources in order to find out whether any given accounting principle has a considerable support. In other words, accountants should always consult reliable sources in finding out whether a given accounting principle which they are intending to apply in a given situation has significant professional backing.
Minbiole (1998, p.10) states that accountants use GAAP to direct them in documenting and reporting financial information. GAAP generally encompasses an extensive set of principles structured by the accounting fraternity and other related partners such as the Security and Exchange Commission in United States. Minbiole (1998, p.10) also provides that GAAP are usually based on number of assumptions including economic equity assumption, monetary unit assumption, time period assumption, control activities, cost principle, matching principle, revenue recognition principle and accrual accounting basis.
The possible and Actual Roles of Auditors and Accountants in Improving Accountability
Accountants and auditors in private, public as well as non-profit sectors play very significant roles in promoting accountability not only within business organizations but also in the wider society by extension. Accountability as mentioned earlier is a major value of human interaction at various levels which enhances peaceful coexistence in the society and its various associative groupings like business organizations, political parties, religious formations, non-profit organizations among others.
This argument is anchored on the premise that accountancy is a central element in the allocation and management of financial resources and wealth in the society as well as in business organizations. It is even safe to argue that without responsible accountancy sustainable development especially socioeconomic development can hardly be achieved. This is because there can be no one who can explain who they are in an organization or public sector and what they are doing and have been doing with resources put aside for development purposes. The need to be accountable to others by the accountants and auditors in the public and private sectors necessitates the need to uphold transparency and openness which goes hand in hand with accountability.
The actual role that accountants and auditors play in improving accountability stems from their duties and responsibilities in organizations. These include major roles such as managing the financial affairs of an organization by way of keeping true financial records and compiling financial statements and reports after a given period of time referred to as a financial year (Baker 1993, p.145).
They are expected to ensure that all transactions involving money as well as usage of other organizational resources like technological and physical resources within the organization are recorded properly without any misrepresentation whatsoever. In the public sectors, accountants are expected to oversee and ensure proper usage of all forms of resources allocated by government and other stakeholders for development of a given region or sphere of the society.
Proper recording of events and actions of management within public and private bodies by the accountants becomes the foundation for establishment of accountability within the various departments of an organization. Awareness by accountants themselves and by extension other members of management in other departments of an organization in the long run they will be called upon to explain their actions necessitates the need to carry out duties within the set standards and professional principles. It is therefore arguable that responsible accountancy is part of the origins of accountability in private and public bodies and the wider society by extension. In the end, everyone is bound to be responsible for their actions irrespective of their standing in an organization.
However, in case of problems in the working of an organization certain institution or departments tends to be held liable for the problems because every one can not be held to account Rasmussen and Siegel (2008, p.57). More often than not the accounting department which is central to the management of virtually all organizations and auditing committees are called upon to explain problems facing the organization. Thus accountants and auditors play a significant role in the entrenchment of accountability in public and private bodies.
The actual duty of auditors is to establish and inform the relevant stakeholders including government authorities, the public, potential investors, managers, donors, suppliers, labor unions and others whether the financial reports and statements prepared by concerned accountants are a true representation of an organization’s or company’s financial working Zinman (1999,p.322).As such auditors monitor on behalf of the stakeholders and shareholders the working of a company or organization in order to determine whether information presented in the profit and loss accounts and balance sheets are a true picture of the financial condition of the entity. In the public sectors for instance, auditor general’s office seeks to establish whether public funds and allocated financial and other resources are utilized for the common good of the public.
Rasmussen and Siegel (2008, p.57) argue that auditors general make a precious contribution to the encouragement of the societal greater accountability from the disciplinary viewpoints of accounting and administration science even though accountability goes well ahead of observance of accounting rules and management principles. Auditors in general facilitate the embracement and upholding of accountability by office holders as value and other values of governance which are a requisite for responsible administration.
The result of their working educates the general public on what is expected of the public office holders. Such knowledge gives the public confidence in questioning what they suspect to be out of line with principles of governance in the society.
Consequently, public servants will execute their duties and responsibilities with greater care and openness knowing that in case of any public dissatisfaction they will be called upon to account for their actions. Likewise, managers and accountants in private business organizations and non-profit organizations will carry out their duties within a framework that calls for accountability in the face of well informed stakeholders, donors and sponsors who knows what is expected of those trusted with the management of their resources so as to facilitate achievement of desired goals.
Recent Experience on Matters related to Accounting and Accountability
Generally, transparency and accountability are a prerequisite for sustainable development in society progress and stability of business organizations targeting a good market share and survival. Recent experience on maters related to accounting and accountability has seen the public and the private bodies see the need for team work approaches in ensuring accountability. The need for team work arises from the realization that development management is a multifaceted phenomenon that necessitates the need for cooperation by various organs of a public or private body. Also the need for organizational approach to accountability agreed upon by all parties is informed by the fact that every member of an organization is liable for his actions in the working process of the organization.
Saravanamuthu (2009,p.278) gives the example of the UK incident in deciding on soil-quality indicators for a nation wide evaluation which he says was seen by keen observers as an agreement-based approach seeking contribution from a cluster of public stakeholders and expert peer review. This kind of cautiousness has raised the need to ensure that wide range of consultations are made before making important decisions which if haphazardly made can raise serious questions on accountability in the long run.
Other factors necessitating the need for strictness and change in matters of accounting and accountability in the recent past has risen from the weaknesses blamed for failure of a number of businesses and deteriorating public accountability. Factors identified for this scenario included looseness of accounting standards, lack of a apparent structure for ensuring that the directors kept the controls in their business under evaluation and the concern that boards or management were paid amounts of salaries that were not connected to their corporate performance Godbole (2004,p.26).
Experiences have also shed more light on the need for reliable checks and balances that can be looked upon in ensuring that audit reports are legitimate. In the end, the monitors becomes the monitored in the strive towards ensuring that public and private accountability as depicted by the accountants and auditors reports are reliable sources of knowledge for judging the working of the public and private bodies.
Accounting and accountability as demonstrated in this task have a common heritage and as such shares a lot of properties. At some point it is elusive to draw the line between accountancy and accountability in public and private bodies. The knowledge by accountants and auditors that they are responsible for their actions to other interested stakeholders thus necessitates the need to uphold accountability in public and private bodies.
Therefore, accountants and auditors play a significant role in improving accountability in their organizations and the wider society. Attainment of accountability in turn necessitates the need to embrace and uphold other values such as transparency, integrity, objectivity and independence which are ingredients of good public and cooperate governance Citron ( 2003, p.13).
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