The Importance Of Accounting

The American Accounting Association (AAA) defines “Accounting as the process of identifying, measuring and communicating economic information to permit informed judgement and decision by users of the information”. Accounting is perceived as a source of communication and language. Accounting statements provide information about the financial performance and position of an entity that is useful to a wide range of users for assessing the stewardship of the management and for making economic decisions. Users can be internal and external.
In order to better understand the importance of accounting, it should be considered from a social view. The society can be split into different arenas such as social, political, economic and organisational. Interactions

It set out the theoretical ideas which underpin accounting.Theories are useful in understanding certain problems of accounting from diverse viewpoints. Theory is “a coherent set of hypothetical, conceptual and pragmatic principles forming the general framework of reference for a field of inquiry” (Hendriksen, 1970, pp.1). Nevertheless, the development of theories through observation may not accurately depict what one actually sees (Chalmers, 1999). This leads us to believe that accounting theories may be subjective and thus reinforces Ruth Hines statement “In communicating reality, we construct

Representational Faithfulness means that information should be based on facts. For instance, if a company reports its cost as $10000 in its financial statement when the actual cost is $8000, this would not accurately depict reality and would instead indulge in speculation. Solomons believes that accountant’s goal should be to faithfully represent economic phenomena. Tinker rejects Solomons’ standpoint claiming that Solomons’ criterion for Representational Faithfulness is based on haphazard hypothesis. Accountants have hidden powers as people think of them as communicators of reality and respond on the basis of what they portray (Hines, 1988). They disregard the fact that accountants construct reality by stretching the picture in communicating reality. In the 1990s accountants were instructed action man (Baldvinsdottir, 2009). For instance, since company failures are the bête noires, accountants present healthy-looking accounts to attract investors as established in Worldcom whereby the U.S Securities and Exchange Commission (SEC) charged the company with massive accounting fraud for overstating their earnings. The SEC is mainly concerned with endorsing disclosure of reliable information. Does the SEC meet its