Accounting and its challenges

The Accounting profession has shifted progressively over the past few years as the landscape has become more challenging.

Accountants, managers and other users of accounting information cannot afford to overlook the major changes that have taken place in the business organisation, business environment and broader society.

Financial Management author Anthony G.Puxty, stresses that Accounting is not merely a collection of techniques, but that it has a significant impact on society at large. So too, society impacts on Accounting and Accountants are seen as the gatekeepers of financial markets, who are responsible for the quality and integrity of information so that

• capital markets are efficient;
• the cost of capital is low;
• the standard of living is high;
• the investment risk is low and
• resources are allocated efficiently

The changing environment has confronted Accounting with a number of challenges that should be recognised, accepted and addressed promptly in order to reverse the already declining trend in its usefulness and relevance.

Challenges accounting face:
Globalisation
With globalization having an escalation of competition among businesses, to survive in this highly competitive environment, organisations are altering the way in which they conduct their business. They have to become customer oriented, lean, efficient and innovative. Globalization does not only affect an organisation and its management, but should also influence the accounting system. The latter should support the raising of capital anywhere in the world, obtaining of listings on foreign exchanges, co-ordination of world-wide operations and the assessment of multinational performances as well as the measurement of productivity, continuous innovation and responsiveness to change.

Information Technology
Technologies had, and will continue to have a profound impact on the way in which information systems gather, process and distribute information within organisations. These technologies also affect the non-information systems that support business functions, such as design, manufacturing and distribution. While accounting cannot play the primary role in initiating or implementing technological innovations and organisational change, the accounting system should provide incentives for improving manufacturing performance and measurements to evaluate progress towards this goal.

The technologies also affect the accounting information system itself. Unfortunately, new technology has been used in the latter instance simply to speed up old methods, in other words crunch predictable numbers faster. However, technology can also be used to create greater flexibility in the accounting information system, thus making it better suited to the changing demands for information.

A shift in business styles
A shift is taking place in the nature of business as the second wave, industrialization, is being replaced by the third wave, information technology. The number of commercial and manufacturing firms is declining and information and service-based firms are escalating. Knowledge has changed from being a minor to a major factor of production.

The traditional accounting model was originally developed to report on business enterprises. Later it was modified through cost accounting to accommodate manufacturing enterprises. This modification was however less than perfect and the result was that additional information was required for decision making.

The evolution of Accounting has been based on a pragmatic approach. Accountants addressed problems as they were encountered and then developed appropriate solutions.

However, accounting should become flexible and adapt to changes in its environment. “Accounting should develop from being a watchdog and scorekeeper to being a facilitator of change” (Turney & Anderson).

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