Accounting is a fundamental element of any business. Whether you are talking about a multinational corporation or a mom-and-pop corner shop, accurate accounting methods are the key to any business' success. The basic purpose of accounting is to act as a steward to the company owners and other interested parties in a business. Those interested parties include the managers, shareholders, creditors, investors and government agencies that have a stake in the company and are entitled to receive financial reports.
If you view accounting from a stewardship perspective, it is much more than a useful business decision making tool or a way of keeping government agencies satisfied. Accountants and the accounting industry as a whole have the responsibility to identify the parties in business transactions and provide them with the information they need to do business in a fair and objective manner.
One of the basic functions of accounting is to measure the resources of a company so that owners can measure the success or failure of the venture. This function increases when the owners of a business are not directly in charge of managing it. In this case, accountants must act as stewards for the owners by accurately reporting the financial situation of the business. When accountants fail to measure the financial health of a company accurately, such as when Enron accountants made overly optimistic projections of future profits, it is the shareholders who suffer.
Protection of Equities
A second function carried out by accountants working as stewards to a business is to protect the interests of the business and balance the claim outsiders and owners make on the assets and resources of the company. This is done by providing reliable financial information about the resources and obligations of a business through standardized forms and documents. This information provides a realistic view of a business' situation and allows managers to make projections on the future of an enterprise.
Estimate Growth Potential
Once the resources of a business are measured and balanced against its liabilities, accountants can use this information to estimate the future of a company. The stewardship function of accounting highlights the responsibility not only to a company's managers, but also to shareholders and potential investors who have the right to look at the financial health of a company. For instance, financial regulations require companies that trade on the stock market to provide extensive financial documentation on the financial status and estimates of projected growth. This information allows analysts to calculate the value of shares and determine the risk level of an investment.
- Maharshi Dayanand University: Accounting Theory
- "The CPA Journal"; An Accountability View of Accounting; Ann L. Watkins; February 2007
- "The New York Times"; Fuzzy Rules of Accounting and Enron; Floyd Norris, Kurt Eichenwald; January 2002
- "Classical, Stewardship, and Market Perspectives on Accounting: A Synthesis"; Shyam Sunder