The Emerging Role of Accounting





The history of accounting indicates the evolutionary pattern which reflects changing socio-economic conditions, and the enlarged purposes to which accounting is applied. In the present context, four phases in the evolution of accounting can be distinguished.
Stewardship Accounting:
In earlier times in history, wealthy people employed ‘steward’ to manage their property. These stewards rendered an account of their stewardship to their owners periodically. This notion lies at the root of financial reporting even today which essentially involves the orderly recording of business transactions commonly known as ‘book-keeping’. Indeed, the accounting concept and procedures in use today for systematic recording of business transactions have their origin in the practices employed by merchants in Italy during the 15th century. The Italian method which specially began to known as ‘double entry book-keeping’ was adopted by other European countries during the 19th century. Stewardship accounting, in a sense, is associated with the need of business owners to keep records of their transactions, the property and tools they owned, as well as debs they owed, and the debt other owed them.
Financial Accounting
Financial accounting dates from the development of large-scale business and the advent of the Joint Stock Company. This form of business which enables he public to participate in providing capital in return for shares in the assets and the profits of the company. His form of business organizations permits a limit to the liability of their members to the nominal values of their shares. This means that the liability of a shareholder for the financial debts of the company is limited to the amount of a shareholder for the financial debts of the company is the limited to the amount he had agreed to pay on the shares he bought. He is not liable to make any further contribution in the operations (or functioning) of a company in any country (for instance, the companies Act in India) gives a legal form to the doctrine of stewardship which require that information be disclosed to the shareholders in the form of annual income statement and balance sheet such statements are generally known as annual financial statements.
Briefly speaking, the income statements is a statement of profit and loss made during the year of the report; and the balance sheet indicates balance of the assets held by the firm and the monetary claims against the firm as on a particular date. He general unwillingness of the company directors to disclose more than the minimum information required by the law, and the growing public awareness have forced the governments in various countries of the world to extend disclosure (of information) requirements.
The importance attached to financial accounting statements can be traced to the need of the society to mobilize savings, and channel hem with profitable investments. Investors, whether they are large or small, must be provided with reliable and sufficient information in order to be able to make sound investments decisions. This is the most significant social purposes of financial accounting.

Cost Accounting
The industrial revolution in England presented a challenge to the development of accounting as a tool of industrial management. Costing technique were developed as guides to management actions. The increasing awareness on the part of entrepreneurs and industrial managers of the benefit of using scientific principles of management in the wake of scientific management movement led to the development of cost accounting. Cost accounting is concerned with the application of costing principles, methods and techniques to ascertain the costs with a view to controlling them and assessing the profitability and efficiency of the enterprise.

Management Accounting
The advent of management accounting was he next logical step in the developmental process. The practice of using accounting information as a direct aid to management is a phenomenon of the 20th century, particularly the last 30-40 years. The genesis of modern management, with its emphasis on detailed information on decision-making, provided a tremendous impetus to the development of management accounting.
Management accounting is concerned with the preparation and presentations of accounting and controlling information in a form which assists management in the formulation of policies, and in decision-making on various matters connected with routine and/or non-routine operations of business enterprise. It is through the technique of management accounting that managers are supplied with information that they need for achieving objectives for which they are accountable. Management accounting has, thus, shifted the focus of accounting from recording and analyzing financial transactions, to using information for decisions affecting the future. In this sense, management accounting has a vital role to play in extending he horizons of modern business. While the reports emanating from financial accounting, specially for outsiders, are subject to the conceptual and legal framework of accounting, internal reports-routine or non-routine are free from such constraints.

Social Responsibility Accounting
Social responsibility accounting is a new phase in the development of accounting and owes is birth to increasing social awareness which has been particularly noticeable over the last two decades or so. Social responsibility accounting widens the scope of accounting by considering the social effects of business decisions, in addition to the economic effects. Several social scientists, statesman, and social worker all over he world have been drawing the attention of their government and the people in their governments and people in their countries to the danger posed to environment and ecology by unbridled industrial growth. The role of business in society is increasingly coming under greater scrutiny. The management is being held responsible not only for efficient conduct of business as expressed in profitability, but also for what it contributes to social well being and progress. There is a growing feeling that the concepts of growth and profit as measured in traditional balance sheets and income statements are too narrow to reflect the social responsibility aspects of a business.

Human Resource Accounting
Way back in 1964, the first attempt to include figures on human capital in the balance sheet was made by Hermansson which later came o be known as human resource accounting (HRA). However there has been a great socio-economics shift in the 1990s with the emergence of the knowledge economy, a distinctive shift towards recognition of human and intellectual capital in contrast to physical capital. Human Resource Accounting is a branch of accounting which seeks to report and emphasis the importance of human resource (knowledgeable, trained, loyal, and committed employees) in a company’s earning process and total assets. It is concerned with “the process of identifying and measuring data about human resource and communicating this information to interested parties”. In simple words, it involves accounting for investment in people to an organization. Generally, the methods used for the valuing and accounting of human resource are either based on costs, or on economic value of human resource. However, providing adequate and valid information on human assets (capital), which are outside the concept of ownership, in figures is very difficult. Nevertheless, to take decisions regarding adequacy of human resource, and thus, encouraging managers to consider investments in manpower in a more positive way.

Inflation Accounting
Inflation accounting is concerned with the adjustment in the value of assets (current and fixed) and of profit in the light of changes in the price level. In a way, it is concerned with the overcoming of limitations that arises in financial statements on account of the cost assumption of stable monetary unit (these as discussed in detail in the next unit). It thus aims at correcting the distortions in the reported result caused by price level changes. Generally, rising prices during inflation have the distorting influence of overstating the profit. Various approaches have been suggested o deal with problem in inflation accounting.


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