In this assignment I will review the statement in question 3, ‘accounting only has one role which is to satisfy user needs’. I will research into what accounting actually is, what its role is, who are it users and how it is relevant to its users. I will also use various books, articles, lecture notes and a wide range of Internet sources to enable me to critically evaluate this statement.
Accounting can be defined as the summarising, measuring and communication of financial transactions, by doing this, accounting aims to enable its users to make informed decisions and reduce the risk of uncertainty.
Accounting has a vital role to play, as it is essential not only to internal users but also to external users in providing information on financial position to facilitate the decision-making process for the allocation of resources, as well as this accounting also has a wider role to play in the economy and society as a whole. An example of accountings role in society can be seen from the NCB accounts where accounting information was used to mislead the public and justify the closure of profitable coal pits and consequently, these actions had a significantly negative effect on social welfare, resulting in job losses, raised electricity prices and taxes for the British people. A more recent example of this is the accounting scandal involving Hewlett-Packard Co. their share prices fell following the news of the scandal and the company is likely to go bankrupt within the next few years, as a result jobs will be lost adding to the already growing issue of unemployment, this has a huge economic and social impact on society.
Users
The users of accounting information are referred to as stakeholders. Stakeholders either have a direct or an indirect interest in the accounting information of an entity. Direct users use accounting information, as a tool to safeguard their own interests, for example owners, managers, suppliers, employees, customers