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Accounting and Its Role in Society

I'm a longtime freelance writer with many years of experience writing about accounting and its processes.

Accounting has a long history. Read on to learn more.

Accounting has a long history. Read on to learn more.


Accounting is concerned with collecting, analysing and communicating economic information (Atrill & McLaney, 2004, p1). However, in order to develop a broader understanding of accounting and the central role it plays in society, we need to consider it from a social perspective.

Individuals in society coexist by establishing relationships with each other. Another way of viewing society is by segmenting it into different groups or arenas, for example, the social, economic, organisational and political arenas (Kyriacou, 2007, Lecture 1, p4). In order to function effectively, these different arenas need to communicate, and it is accounting information that facilitates this communication. According to Kyriacou (2007, Lecture 1, p5), accounting information serves many important purposes, for example, assisting users in making informed decisions in relation to the effective allocation of scarce resources.

Accounting’s Long History

Therefore accounting information can be seen to be a potent influence in society, which affects everybody. This is illustrated by the National Coal Board case (Cooper et al., 1985, p10), where the measurement of accounting profit was used to justify the closure of coal pits, causing an impact on electricity prices, jobs and taxes.

Accounting has a long history, and as demonstrated by Hines (1988, p251-261), it is seen as being socially constructed, i.e. it is practised by people for people and, therefore, it is more of an art rather than a science. Unlike other professions, which have a body of theoretical knowledge to depend on to make decisions, accounting has evolved as a craft with few rules and little to no theoretical knowledge underpinning its practise and function.

Accounting’s Stewardship Role

Accounting traditionally has played a stewardship role, as depicted by Morgan (Morgan et al., 1982, p309) when he uses the image of accounting as a historical record to demonstrate accounting as an extension of the owner’s personal memory. However, society and business practices have changed. The growth of global business and the emergence of new sectors such as eCommerce have led to complex transactions being undertaken.

This, in turn, has unearthed problems of subjectivity and inconsistency in the application of traditional accounting techniques. For example, changes in the nature of business assets, including intellectual property or the use of leasing, have led to the question of how to account for these types of transactions.

This fundamental change has resulted in loopholes in accounting and led to manipulation and scandals.

How to Minimise Loopholes

In order to minimise loopholes, the accounting profession has invested a huge amount of time and money in injecting theory into accounting in a bid to provide a framework for the application of accounting techniques as well as provide meaning to traditional accounting practices. However, as mentioned earlier, accounting is an art, not a science, and so the development of theory, though beneficial, is problematic in practice.

In this essay, I will address more specifically how loopholes in accounting are attributable to the lack of theoretical knowledge and critically evaluate methods used by the accounting profession to implement theory into accounting. In doing so, I will be exploring, in particular, the development of the conceptual framework, the contributions made by modern accounting theorists and the developments in accounting concepts.

How Accounting Has Evolved as a Craft

As mentioned previously, accounting has evolved as a craft during a time when society was simplistic. Due to changes in social and economic activity, accounting has been exposed to criticism for failing to be more responsive and adaptable. As a result, the profession has moved forward to restore accounting's position in society by taking a number of initiatives to implement the theory.

So what is the theory? According to Wikipedia:

“Humans construct theories in order to explain, predict and master phenomena.”

Therefore, by developing accounting theory, it should provide guidance for accountants on how to apply certain accounting practises in certain circumstances.

How Theory Is Developed

This leads to the question of how theory is developed. Science is widely considered to have solid knowledge based on facts. The scientific formulation of the theory is derived through the process of inductive reasoning. This process is based on observation and generalising upon a single observation to derive a law or theory. Once the law or theory is established, it can be used to explain and predict through the process of deductive reasoning. Accounting theories such as stock valuation and depreciation have been derived on the basis of inductive reasoning.

However, according to Chalmers (1999, p4-5), there are loopholes in developing theory through observation. For example, observations can be biased as one may not accurately depict what one actually sees. Also, Chalmers argues that our brain interprets what we observe, which depends on knowledge, experience and expectation.

This leads us to believe that accounting theories developed in this way are subjective and further reinforces Ruth Hines’s point that “In communicating reality, we construct reality” (1988, p251-261).

One of the major attempts by the accounting profession to minimise loopholes is with the development of the conceptual framework. According to O’Regan (2006, p35), the conceptual framework can be defined as:

“A unified and generally accepted set of theories and principles that provide a foundation from which specific practices and methods can be deduced.”

In other words, a conceptual framework can be considered a religious holy book for accounting, containing definitions and concepts that are central to its practice.

The pioneers of the conceptual framework have been the (FASB) Financial accounting standards board. Their progress has encouraged and generated further interest in the conceptual framework, which has led to the IASC and ASB commissioning their own projects and developing their own version.

Conceptual Framework Publications

However, all three conceptual framework publications broadly cover similar grounds, which include:

  • The objectives of financial statements/reporting
  • The qualitative characteristics of financial information
  • The definition of elements in the financial statements
  • The recognition and measurement of an element

Although the conceptual framework project has been a lengthy and expensive process, in my opinion, it is a step in the right direction as it provides a foundation for some kind of knowledge base and also reduces loopholes in certain areas. For instance, in the elements section, key concepts have been defined, for example, what constitutes an asset or liability.

Positives That Have Come From the Conceptual Framework

Although there are positives that have come from the conceptual framework, in my opinion, there are many loopholes still present that enable a significant judgement to be exercised.

For instance, the framework isn’t a standard, so will accountants adhere to it? The true and fair view is considered to be a fundamental aspect of all accounting information; however, there is a lack of coverage of issues relating to it. In addition, some of the issues covered are too broad and non-specific, such as how to measure an element, whether through the historic or cost method.

The loopholes in the conceptual framework can be illustrated by the collapse of Kmart, where the blame was partly placed on problems with FASB’s conceptual framework (O’Regan, 2006, p45).

Prior to the development of the conceptual framework, accounting only had SSAP2’ Disclosure of accounting principles’ to depend on. Developed in 1971, SSAP2 has historically played an integral role in accounting in the absence of other standards (Barden, 2000, p80). Out of the ten accounting conventions, SSAP2 considered the going concern, accruals, consistency and prudence as the fundamental concepts.

Although SSAP2 was beneficial to the accounting profession in providing much-needed guidance and explanation, there were problems with contradictory concepts. For example, prudence requires judgement and opinion, which conflicts with neutrality (Paterson, 2002, p105). Also, the going concern requires accountants to make fundamental assumptions about the future viability of an entity, which contradicts prudence.

However, with the publication of the ASB’s statement of principles, the SSAP2 was revised and replaced by FRS18’ Accounting policies’ in 2000.

FRS18 still emphasises the importance of accruals and going concern concepts however prudence and consistency are now considered to be less important. Instead, greater importance is given to comparability and relevance, which has largely been driven by the need for users to be provided with relevant information which is easily comparable.

In addition, FRS18 goes into some detail in explaining the appropriate application of accounting policies and estimation techniques. However, again, little attempt is made to define the true and fair view. All FRS18 says that the overriding criteria for applying a certain accounting policy are to ensure that the policy gives a true and fair view (Alexander & Britton, 1993, p238) This is again a matter of judgement and is really based on what one's interpretation of the true and fair view is.

In my opinion, FRS18 has been an improvement on SSAP2, but inconsistencies and gaps remain.

The corporate report was another initiative used to address the needs of other stakeholders and move away from the stewardship function of accounting. Published in 1975, the report recommended additional information to be published with the annual report in order to describe a complete picture of an entity’s performance. Some of the suggested statements include a value-added statement, an employment report and a statement of future prospects.

However, as suggested by Davis (Davis et al. 1982, p313), when he uses the image of accounting as a commodity, is all this information useful enough to outweigh the cost of producing it? Additionally, the proposal to include such statements on future prospects would lead to a vast amount of speculative judgement and opinion.

The Role of Accounting Theorists and Researchers

Accounting theorists and researchers have also played a role in attempting to apply theory to accounting. The use of imagery has enabled theorists to explore the nature of accounting practices by applying the characteristics of the image in the context of accounting.

Two contributors to the development of accounting theory through the use of imagery have been David Solomon and Tony Tinker. Solomon was a strong advocate of neutrality in accounting and used images of journalists, speedometers, telephone and cartography to illustrate his way of thinking (Tinker, 1991, p297).

He suggests that accountants should be like journalists, reporting the news, not making it. Accountants should function like a speedometer in capturing the real economic speed of an entity. In addition, accountants should convey information impartially like a telephone. Solomon further suggests accounting should function like cartography in producing maps of economic reality. These images give us greater insight into how accounting should function in an ideal world.

Tony Tinker, however, argues against Solomon’s use of metaphors as being unsuitable and problematic. Tinker suggests that journalists portray reality by disregarding some of the facts and uses the example of the director of Israel broadcasting failing to comply with the journalist’s code of practice (Tinker, 1991, p300).

Also, according to Tinker (1991, p299): “Solomon’s automotive speedometer analogy poorly reflects financial reporting” and suggests drivers are likely to tamper with the speedometer to avoid being caught out. He also argues that the telephone doesn’t convey thoughts but what people say, which leads to intentional and unintentional bias, as the telephone is selective. Tinker goes on further to criticise Solomon’s cartography metaphor and argues that maps don’t represent facts as there are distortions that affect our behaviour, e.g. colour and size (Tinker, 1991, p300).

As demonstrated by Solomon and Tinker, no one image captures fully what accounting is all about. In my opinion, the different images in the debate provide different perspectives of accounting practices and further introduce newer images to try to overcome contradictions and influence future accounting developments. The existence of such debates also represents the problematic nature of accounting and the loopholes in its theoretical development.

How Accounting Has Evolved

In conclusion, accounting has evolved as a craft with no theoretical base during a time when society and business activity were less complex. However, the technological and globalisation-induced changes that have occurred have resulted in loopholes in accounting being exploited. Much interest in developing a theoretical knowledge base for accounting has gathered pace.

The conceptual framework has been an important milestone that provides accountants with the basic tools needed to understand and apply different accounting policies in appropriate circumstances. However, the framework lacks in consistency, and there is still much room for interpretation and opinion. For example, little to no attention is given to the underlying concept of the true and fair view, which is a fundamental loophole.

In addition, the transition from SSAP2 to FRS18 has led to clarification of accounting polices and estimation techniques. However, inconsistencies and subjectivity still remain. Accounting theorists have also provided useful insights into accounting through the use of images. However, the Tinker and Solomon debate represents in itself a loophole in accounting, as there is a lack of agreement on what function it should play and how accounting practices should be employed.

Overall, in my opinion, the accounting profession has made significant progress in developing a theoretical base for accounting. Also, due to the function of accounting being dependent on the needs of users and their needs being responsive to constant changes in society and economic activity, the accounting theoretical jigsaw is never likely to be complete, as when one problem is resolved, another appears.

Also, the need for an independent auditor to verify whether accounting information gives a true and fair view partly demonstrates the subjective nature of the profession and the presence of loopholes. Additionally, examples of major corporate collapses such as Refco, which concealed millions in debts through related party transactions, had drawn up accounts in the presence of accounting rules and the conceptual framework, which goes some way in reinforcing the fact that many loopholes still exist and are still being exploited.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.


cynthia on February 09, 2019:

roles of accounting to the society

Esther on November 23, 2017:

Why do people study accounting

Dayton on November 18, 2017:

Where is your list of sources? Some of your references were interesting and I'd like to read more.

James Smith on July 27, 2017:

There are many types of profession in the world which are held in high esteem in public eyes and there is no denying the fact that the accounting profession in one of them. At the core of all types of learned profession, there is the desire of public good and of finding the best way to serve society. By the help of science of accountancy and the spell of its art, a dynamic pattern which assists business in planning its future is cane by accountants out of the inert mass on non-speaking silent figures. This makes their profession an instrument of socio-economic change and welfare of the society.

An accountant with the help of his education, training from, analytical mind and experience is best qualified to provide multiple need-based services to the ever growing society. The accountants of these days can do full justice not only to matters relating to taxation, costing, management accounting, financial lay out, company legislation and procedures but they can delve deep into the fields relating to financial policies, budgetary policies and even economic principles. The area of activities which can be undertaken by the accountants is not limited but it can also cover many additional facets.

mrithul on August 23, 2016:

thanks for the information.......

David on January 23, 2016:

please sent me the role of accountants in society" in the world or anyone. thanks guys"

Hmm on December 08, 2014:


wasiq on November 10, 2014:

Hi nrupalia,

Was this a coursework you did, and what mark did you get for it?

beaty mbuta Tanzania on January 20, 2013:

Accounting is everything in the world especially in daily life based on our activities,bussines,education studies.

Chris von I.saiteu Tanzania on June 28, 2012:

Akaunting ni muhimu katika maisha ya kila siku.

israel imo on May 31, 2012:

please send me "the role of professional accountancy bodies in the formulation of accounting theories in Nigeria"

Chukwu solomon nigeria{2348130507726} on May 23, 2012:

Accounting is a discipline which involves collection {book-keeping7},classifying,analysing,summarising,and reporting in a significant manner busines transactions and events which could be in part at least financial and the interpretation of the result thereof,"

Ogunrinde Olajide A. on May 18, 2012:

Accounting is a life on iself in terms of referrences in both past and present and even in future,therefore accounting is unavoidable in man'slife.

Joe kiah on February 29, 2012:

Hampet mean success is mine

thami on February 17, 2012:

accoounting is the most improtant aspect on earth,,to individuals,busnesses both big and the parliamnts,polotics and so forth they depent on accounting..withourt accounting there no prorper life..whwt ever decision made one should be accountable

Samuelson Daniel, jos Nigeria on January 29, 2012:

With reference to your article,you stated that 'an accountant is seen as a social constructer....pls kindly compire the work/duties of an accountant that can affect the society at-large positively/neatively to that of a MEDICAL DOCTOR to an individual in regard to reorganisation,reconstuction,advice etc to an economic entity.

Accept my sincered regards,

EMMANUEL M. RICHARD on January 18, 2012:

Big up.....but you need to put emphasize on reading more books so that can rise up your knowledge

Kimambo, Charlz N. on January 31, 2011:

From my own business perspective: the role of accounting in society are as follows;

- Source of employment since the accounting professionals are of high imperative in any institution progress.

- Accounting is Language of business where social-economic activities are basic dependant on its fuctions.

- Accounting largely contributes in planning process of some social institution intiatives.

- Economic maintainance in day to day actives eg. during economic depression etc

- Efficiency proliferation in societal activities, eg. TPS system in supermarkets, measuring the actual value of some society properties eg land, buildings, etc


Kimambo, cn

United States International University - Nairobi, Kenya (Africa)

2nd year, Bsc Accounting & finance, minor Marketing.

wosu nsitem on June 12, 2010:

i am accounting sudent in universit of uyo , i will like to member

dominic tuliuan on November 22, 2009:

send me some particular roles of accountants to the people and to its surroundings.