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Role of Accounting Profession in Value Creation


Discuss about the Role of Accounting Profession in Value Creation.



Accounting Profession is one of the most learned and challenging profession in which a person popularly known as accountant measures, processes and communicates the financial information of an organization or a business firm about their economic activities. An accountant has very critical roles and responsibilities in a business organization as he has to perform accounting functions such as audits and prepare the financial statements which can be used for a variety of purposes by the organization itself, investors and shareholders. For large organizations, Accountants are hired to work under a dedicated accounts department who have the major responsibilities to prepare the financial statements for all the transactions by the organization.

As per the survey, the accounting profession plays a vital role in creating and delivering public value. Professional accountants are considered as an important source for creating value that they bring to their business organization. In Business organizations, leaders need to have an understanding about their investment in developing the potential of their finance employees, which can prove to be effective as it helps the organization in achieving their target goals. A Management accountant provides necessary information about planning, controlling and managing the operations in a business.  In context to this, the main aim of Managerial accounting is to provide appropriate and necessary accounting information within a business organization to the people which help them in making important decision, planning and controlling a number of business operations. International Integrated Reporting Council (IIRC) has identified six capitals required in a business organization which includes financial capital, intellectual capital, human capital, natural capital, manufacturing capital, and social relationship capital. These six capitals together are the source of value creation in an organization. The accounting profession plays a key role in creating value expressed in six capitals and there are a number of challenges associated with this that a management accountant may face during the operations. (Gray, 2015).

Integrated Reporting is a new approach which is associated with corporate reporting which has gained international recognition at a rapid rate. Integrated Reporting is based on the integrated thinking which helps in determining the connectivity of strategy, strategic objectives, risks & incentives and performance and helps to discover the sources of value creation. Businesses organizations are expected to create integrated report not only on the basis of profit but also about their impact on the society, economy and the business environment.

Discussion: Accounting is defined as process which includes identification, measurement, recording and sharing the necessary information which is related with various economic events that occurs in an organization. This information helps the users in the process of decision making.  The identification process refers to recognising the type of transaction that has to be recorded in a particular type of structure that means recognition of events which has to be recorded. This involves observation of activities and choosing the one which holds the financial value and is associated with the organization. The measurement means enumeration (that includes estimates) of various industrial transactions into fiscal terms of utilizing the monetary unit, viz. the currency of the country as a unit of measurement. Any event which does not relates to the monetary terms is not taken into financial account This is the reason that major events like signing the contracts, making amendments in the contracts and appointing the general manager etc. are not recorded in any account book (Team, 2011). These economic events are recorded in such a way that the necessary that the financial data is summarized as per the pre-defined and properly established practice and it is easy to retrieve when required. These economic events are recognized, quantified and recorded in a way that the relevant information is created and communicated in a proper well defined format to the management and other users i.e. internal and external. This information and related data are communicated at regular intervals via accounting reports. The reports provide adequate information which serves a lot of purpose to a number of users. These users are the one, who are interested in evaluating the financial performance and the current status of an organization, and also plans and controls various business activities and assists in making important decisions in a timely manner. Business organizations involve economic events such as buying tool, machinery and equipment, its installation and preparation for manufacturing etc. Such activities involves financial transactions as they have to pay to the dealer from whom the machinery has been bought , delivery and logistic cost, site preparation for machine installation etc. With the help of accounting, financial transactions are recorded which is related to any economic event in a business organization (Brand, 2010).

The adequate information basically for cost and financial accounting is drawn by management accountant that helps the senior executives in making decisions about budgets, assessment of profits, pricing and capital expenditure etc.  Further, it also generates other information (non-financial and financial and qualitative and quantitative) which is related for the future needs. Such information includes sales forecast, cash flows, manpower requirement, buying needs, environmental statistics related to impact on air, water, land, natural resources, human health and social responsibilities etc. This shows that the scope of managerial accounting is very wide that new domains such as responsibility accounting, human resource accounting, and social accounting have gained importance these days.

It has been observed that some of the industries make mistakes in investments because they don’t have appropriate accounting information and make wrong decisions. Here management accounting helps in making investment related decisions. It is dependent on the manager and senior executives how the information is being utilized for company’s growth and development. (Adams, 2013).  

Accounting profession plays a key role in value creation in the terms of six capitals which have been identified by the International Integrated Reporting Council consists of financial capital, human capital, intellect capital, natural capital, manufacturing capital and social and relationship capital. These six capitals represent the stocks of value which may rise, decrease, or change due to various activities and outcomes of a business organization. Manufacturing and financial capital are the mostly reported capital by an organization. The human capital, social & relationship capital and intellect capital are associated with the human activities. The Natural capital is the external environment on which other capitals lies. Natural capital is most relevant for  business models of those industries which are involved in the extraction process that gets the raw material from natural resources and also relevant for those business organizations which are dependent on the renewable and non renewable resources to produce goods and services.

Accounting Professionals and their finance related functions plays a significant role in extending the support by providing connectivity amongst the four main elements of integrated thinking which include integrated planning, an external value focus, oversight and integrated communication and effective governance (Zainuddin & Sulaiman, 2016). Accounting Professionals with a broad view of the organization must make sure that the people, process and system are connected in an efficient way for which integrated planning approach is required. These accounting professionals are so much well positioned that they know how to make a significant connection amongst the different elements of planning. Every department of an organization needs to know their respective job and responsibilities for communicating with the structure of integrated planning. 

In the terms of Six Capitals, the Value Creation process in a business organization (as illustrated below) is composed of integrated planning, Risk Management, Budgeting, Performance Management, effective governance and oversight, integrated communication which is required to be managed by accounting professionals (Accountants, 2014). International Integrated Reporting Council,

(International Integrated Reporting Council, 2016)

The accounting Profession is facing a number of challenges these days and is expected to cope up rapidly with the changing business environment. Business Organizations are demanding for proactive accounting professionals who are ready to accept the challenges related to business management and value creation. As stated by Johnson and Kaplan, management accountants have lost their relevance in association with the current business environment. The continuous transformation in the business environment affects the practices of management accounting that leads to tough challenges which are faced by the management accountants these days. Besides this an rising in a number of accounting scandals like auditing profession and failings of the accounting also contributes to the changes in the governmental rules and regulations (NCERT Team, 2015). The changes in a business organization have occurred due to intense competition, globalization, information technology and changes in the rules and regulations have made the job of a management accountant critical. The pressures build up from the competition in the market  have created a number of  challenges for the management accountants to cope with the modern management accounting practice which includes costing based on activity and balance scorecard in order to respond to changing need of business environment.

Witnessing such challenges Management accountants needs to use some efficient techniques to cope up with the dynamic business environment. With the use of information technology, management accountant can keep track of the changes in the business environment and take the necessary measures accordingly (Aaccountlearning Team, 2016). The management techniques used by the accounting professionals are analysis using Ratio Analysis, Cash Flow Analysis, Fund Flow Cost volume - Profit Analysis, Operation Research, linear programming, analysis of cost variances, Budgetary control, Business Forecasting, Integrated auditing, management information system etc.

The main objective of any business organization is to achieve the desired business and profitable goals for which it has to do planning for the arrangement of the six capitals. For financial analysis, management accountant needs to have a record of all financial transactions and related profit, loss and balance sheets for making necessary decisions in a business organization. Under budgetary control the future financial needs of an organization can be forecasted and arrangements can be done in advance. With the help of these management techniques, an organization cannot fail in the dynamic business environment which needs proactive management accountants to cope up with the changing business needs.

Integrated reporting is a process which has its basis on integrated thinking that produces a periodic report and associated communication which highlights the value creation.  Integrated reporting helps in bringing necessary information about the strategies, governance, performance and opportunities in an efficient and effective way for which it has been regarded as the most important vehicle for a business organization. It provides the meaningful evaluation of the long term viability of the business model and strategy. It also helps in meeting the needs of various investors and shareholders.

Integrated thinking and integrated reporting are vital opportunities for the professional accountants who have a number of roles such as leadership, operation and management in an organization. The main opportunity is to focus on value creation of an organization and their respective stakeholders and they also have to show that how value is being created by the professional accountants. An Accounting Professional can assist in developing an understanding of creating value with the help of information gathering and analysis and decision support activities that will finally help an organization to move in the direction of integrated reporting (International Federation of Accountants, 2012). Accounting professionals can be professed to meet the needs of their employers as well as a society if they make a direct contribution to the organizational effort to create and sustain the value in a broad perspective rather than the old finance and accounting measures. The necessary information and analysis provided by them can extend the support in decision making about developing a better and broad understanding about the drivers of long term value and disparate sources to make sure that the strategy is implemented in a better way.

The enhanced role of Accounting professional includes the facilitation of integrated thinking and integrated reporting, as part of creating sustainable value and improved communication with all key stakeholders and capital providers. Consequently it will lead the accounting professions to be a rewarding profession at the heart of the organization.  Therefore in today’s business environment integrated reporting is a significant requirement of any business organization for which integrated thinking is required (International Integrated Reporting Committee, 2011)

Conclusion: The study was based on identifying the role of the accounting profession in value creation in terms of six capitals. Accounting is a very challenging profession in which an accountant is responsible for conducting audits and producing financial statements of an organization which can be used by the organization itself, various shareholders and investors as well. There are six capitals which have been stated by the International Integrated reporting council which includes financial capital, manufacturing capital, natural capital, human capital, intellect capital, and social relationship capital which has to be managed by a management accountant in an organization to create value and deliver it to the public. These six capitals represent the stocks of value which may rise, decrease, or change due to various activities and outcomes of a business organization. Integrated thinking and integrated reporting have been identified as the vital opportunities for the professional accountants who have a number of roles such as leadership, operation and management in an organization. The main opportunity was to focus on value creation of an organization and their respective stakeholders and they are shown that how the value was being created by the professional accountants. Accounting Professionals and their finance related functions plays a significant role by providing connectivity amongst the four main elements of integrated thinking which include integrated planning, external value focus, effective governance and oversight & integrated communication. In the terms of Six Capitals, the Value Creation process in a business organization is composed of integrated planning, Risk Management, Budgeting, Performance Management, effective governance and oversight, integrated communication which is required to be managed by accounting professionals. There are a number of challnges that are associated with the managment accountant to the changing business environment for which organization needs proactive accounting professionals. To overcome these challanges management accountant have a number of techniques such as cash flow analysis, managment information system, budgeting etc. Therefore from the above context it can be concluded that role of a management accountant is not just counting a bean these days rather they have a significant role in making necessary decisions for the business organization which can help them in achieving their target business goals.


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