Changing Face of Accounting

Introduction to Changing Face of Accounting

Over the past 25 years, the environment in which businesses operate has become more and more competitive and turbulent. Several reasons have been recognized to describe these changes, including:

  • The increasing sophistication of customers;
  • The development of a global economy where national frontiers become less significant;
  • Quick changes in technology;
  • The deregulation of domestic markets (for instance water, electricity and gas);
  • From owners Increasing pressure (shareholders) for competitive economic returns;
  • The increasing instability of financial markets.

This new, more complex, environment has brought new challenges for managers and other users of accounting information. Their requirements have changed and both financial accounting and management accounting have had to reply. To perform the changing requirement of users there has been an essential review of the type of information to be reported. The changing business environment has given added force to the search for an apparent framework and standards on which to base financial accounting reports. Several attempts have been made to simplify the aim of financial accounting reports and to give a more solid foundation for the development of accounting rules. The frameworks and principles which have been developed to make out fundamental questions like:

  • Who are the users of financial accounting information?
  • What types of financial accounting reports should be prepared and what should they consist of?
  • How should items (like profit and asset values) be measured?

In reply to criticisms that the financial reports of a number of businesses are not sufficiently clear to users, the makers accounting rule have tried to enhance reporting rules to make sure that the accounting policies of businesses are more transparent and more comparable, and that they portray economic reality more truly. When this has had a usually advantageous effect, the recent accounting scandals have demonstrated the limitations of accounting rules in defending investors and others.

The internationalisation of businesses has formed a requirement for accounting rules to contain an international reach. It can no longer be supposed that users of accounting information that is relating to a specific business are based in the country where the business operates or are well-known with the accounting rules of that country. So, there has been rising harmonisation of accounting rules beyond national frontiers.

Management accounting has also altered through becoming more outward looking in its focus. In the past, information given to managers has been largely limited to that collected in the business. Though, the behaviour and attitude of customers and rival businesses has now become the object of much information gathering. Progressively, successful businesses are those that are capable to secure and preserve competitive benefit over their rivals.

To acquire this benefit, businesses have turn into more 'customer driven' (i.e., concerned with satisfying customer requirements). This has lead to management accounting information that gives details of customers and the market, like customer evaluation of services provided and market share. Additionally the information concerning to the costs and profits of rival businesses that can be employed as 'benchmarks' through which to gauge competitiveness, is reported and gathered.

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