Organization as a whole is a part of a wider social system and the information created is used by management, other organizations, the state, stake holders and other individuals. This point of view is also backed by systems-oriented theories which focus on the information and disclosure requirements for organizations. [Deegan, 2003, p98]
Revenue recognition
As per AASB 118 ‘Revenue’ the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants (craig deegan, Australian financial accounting, 4th ed., pg 542). Prior to AASB 118, IASB 104 gave a broader perspective of revenue, which we now refer to as income. As per Ruth D. Hines, revenue is recognized when it is realized. But revenue can be recognized when the entity has transferred to the buyer the significant risks and rewards of ownership of the goods and provided the entity retains neither continuing managerial involvement associated with the ownership nor effective control over the goods and the costs incurred could be measured reliably and it is probable that the economic benefits will flow to the entity.
Revenue less expenses equals profit. It is now the management’s decision regarding the usage of profit. It can declare a dividend, retained earnings or bonus issue. The accountants need to present a true and fair view of the organization in whatever decision they make regarding the usage of profits. A company can declare an interim dividend without the approval of shareholders in anticipation of profits. It is also referred as part dividends. At the end of the year, if further dividend is recommended, it is known as final dividend. Retained earnings are that part of the profit which is held back, before declaring, for further reinvestment for future growth and expansion.
Realization of Assets
The statement of accounting concepts SAC 4, issued by the Australian Accounting Research Foundation defines assets as the future economic benefits controlled by a business as a result of past transactions or other past events (Kloot et. Al. 1995, p 514). The assets of an organization can be broadly categorized into tangible assets and intangible assets. Tangible assets are the physical substances such as land, buildings, machinery, equipment and vehicles. Intangible assets are non-current, non-monetary assets without physical existence but which yield revenue for the organization. Further intangible assets can be identifiable which means that a specific value can be placed on each individual asset and they can be separately identified and sold. These are patents, trademarks and copyrights etc. The unidentifiable intangible assets include skilled, labor, established market share and goodwill, which cannot be separately sold. Hines comments on the accountability of goodwill by comparing it with the water in the river. The water and the river cannot be accounted to be asset of the organization unless the organization is sold. This is called the point of realization. AASB 138 which is equivalent of IAS 38 prohibits internally generated brands, mastheads, customer lists and goodwill to be recognized as intangible assets. The organizations can only account goodwill if they have purchased it with the organization and revaluations of intangible assets to fair value are restricted (McBride and Carroll 2005, p 857).
The Corporation and Society
The corporation is a part of the society with responsibility for impacting and improving society’s environment. Three perspectives can be discussed in relation to this, which are, (1) the conflict between private profit and public morality; (2) the society responsibility that the employer should be with for their employees; (3) the help or contribution that the company pays back to the society. A healthy and modern corporation should improve their idea on the issue like that: (1) identifying and treating with the society effects worked by all production and operation activities positively, at the same time taking the society effects in hand; (2) recognizing the society problems and solving them positively, transferring society problems into a chance to improve the corporation. This issue doesn’t point to the appearance of new technology, new produce or new service, but to the fact that solving the society problem will benefit and strengthen the corporation directly or indirectly. Thus, the corporation can not only satisfying the need of the society, but also improves itself.
Nowadays, many corporations have written their society responsibility into corporation regulation in details. The main idea of these regulation is that the corporation is a economic and knowledge social property to local society, country even all of the world; focusing more on the environment, caring more about profit of the liver near the factory; encouraging employees to pay more attention on society responsibility; treating all personnel fairly and properly without discrimination on strips, skin color, religion or sex; contributing on solving society problems with their knowledge and ability. People has begin to know that improve our society is not the responsibility of one certain person but the responsibility of all of the organizations and corporations.
Social responsibility of accountants
Our position as financial accountants is in constructing the status quo in society. We have been officially designated by theorists as communicating reality, & they just accept this is actually what we do: i.e.,-a communication perspective, a measurement perspective & information perspective. They see our job as e technical one, measuring & communicating reality.
An example where they claim we don’t represent reality is company failures. This is because the accounts present a picture of a healthy organization & then it fails. It gives an overall impression that many organizations could be in a similar position leading to massive losses all round. If we don’t report it, organizations could go through these rough patches. On the other hand if we suggest an organization is going to fail, we lift the ‘going concern’ assumption, thus prepare accounts on the basis of liquidation values rather than cost. This would in turn cause people to panic and the organization would fail. It would be like we willed for the organization to fail. Collapses have adverse affects on various parties & include shareholders, creditors, suppliers, customers, employees, & the government due to lost taxes.
Due to the spate of collapses, regulation has emerged to try and reduce these collapses. The International Accounting Standards Board (IASB), which was preceded by the board of the International Accounting Standards Committee (IASC), assumed its role in 1st April 2001(iasb.org). Its function was to continue in accounting standard-setting, International Financial Reporting Standards IFRSs. The regulation was meant to streamline the accounting profession internationally.
As financial accountants we should be honest in every aspect of our work. We need to prepare financial accounts with utmost care so as not to misrepresent the state of the organizations. Auditor firms need also to be independent of their clients so as to present a true & fair view of the accounts. This information is vital for many stakeholders & shareholders to make decisions, In Communicating Reality, We construct Reality.
List of References:
Chua, W.F (1986) “Radical development in accounting thought”, the accounting review, vol 6(5), pg 601- 632
IASB:
McBride Patricia and Naomi Carroll, Accounting Handbook CPA Australia 2005,Pearson Prentice Hall,Melbourne.
Michael Gaffikin, Ron Dagwell, Graeme wines (2004) “Corporate accounting in Australia” 3rd edition, University of New South Wales Press Ltd. Sydney.
Ruth D Hines, “Financial Accounting: In communicating Reality, we construct reality”, Accounting Organizations and Society, Vol 13, No 3, pp 251-261, 1988.
