Role Of Performance In Accounting

Accounting simply means recording, classifying, and summarizing transactions and events in a manner that aids its users i.e. internal and external users to assess the financial performance and position of the entity. Internal users are simply the management while external users comprise of investors, stock market analysts, suppliers, lenders, customers etc. This report will critically discuss the role of performance in accounting and how all users can rely on accounting information for illuminating the true performance of a company. It will start by explaining the significance of performance in modern organizations followed by the role of regulatory bodies and in making of financial statements and their comparability amongst different organisations.

As per the central law and international accounting standards, every firm must maintain a documented record of all its business transactions. Generally, this is achieved through a central information system having a section of accounting information under it, which gathers, registers, administers, evaluates and maintains information pertaining to business operations and further display the data in the format of financial statements (Gerdin, 2005). Evidence has shown that performance measurement system includes various accounting parameters to methodically evaluate and meet information needs of the managers in order to devise future strategies for achieving objectives. In such a situation, to measure the achievement of the company in relation to others, International Accounting Standards (International Accounting Standards Committee, 2000) are utilized to bring down the differences in financial statements and reflect the true performance of an organisation (Barth, 2008). A typical example can be on the stock market, where a company’s valuation holds importance as crucial economic decisions about buying, selling or holding shares are dependent on it (Bowman, 1980; Payne et al., 2008). Potential investors or credit firms require the valuation of a company to decide upon the

However, when comparing different organisations’ performance, a unique evaluation system which produces comparable results across all measuring parameters should be adopted (Venkatraman and Ramanujam, 1986). In summary, subjective input by managers in previous performance reports, which gets converted to accounting statements, may lead to the presentation of inaccurate accomplishment of the company. Hence, a structured but standard method of accounting performance measurement will be successful in eliminating wastes and creating value for all stakeholders. Need for the fair determination of accounting performance is emphasised by Mitchell et al (2017) in terms of assets, expenses, liabilities, revenues, costs and cash flow. Organisational activities like leadership, planning, decision making, compensating and controlling etc. are influenced by the accounting indicators of performance measurement. Valid accounting measurement models with an objective approach would result in real facts and fair results. Milo et al (2016) stress the importance of accounting and reporting system in creating an organisation 's value system. Through an efficient system, stakeholders, both internal and external, are informed about results of critical organisational policies and therefore enhance the stakeholder engagement in comprehending various activities at the firm. A structured but standard method of accounting performance measurement will be successful in eliminating wastes and