The Future of Accounting

In many countries, accounting regulation is based on a system of detailed rules prescribed in standards and the law. However, rule-based systems can rarely be water-tight. There may be gaps in the rules and places where the rules are vague or even incomplete. Of equal, if not greater significance is the fact that regulatees may develop schemes which fulfill the letter of the rules, but undermine their spirit. Regulators may find themselves constantly lagging behind the avoidance activities of the regulatees (McBarnet, 1988). In such circumstances, effective regulation breaks down. For the past ten years, the financial instruments issued by companies have become more and more complex.

While it is impossible to predict the future, there are some trends and indicators which offer a window through which a glimpse of the possibilities can be seen. The non-stop tries of some companies to trick the state by arranging their financial statements has forced the FASB, SEC and other government authorities to improve and change some GAAP regulations.

In the last 12 to 24 months, there has been a tremendous change in the financial reporting infrastructure within the European Union and in Romania as well so she can get accepted in the European Union, as evidenced by the many interesting and important developments that have occurred.

On the regulatory side, the European Commission (EC) issued a draft regulation that will require the use of IAS by 2005, or 2007, for 7,000 companies. That draft regulation was endorsed by the European Parliament less than 2 months ago. The European Financial Reporting Advisory Group, or EFRAG, was established to coordinate the development of input to the IASB; and securities regulators in Europe have come together to agree on a more unified structure via the Committee of European Securities Regulators, otherwise known as CESR.

For the standard-setters, in April 2001, the IASC, the predecessor to the IASB, was reorganized into a full-time, independent standard-setter; and the IASB agreed on its initial agenda, which included an "improvements" project, a project on the first-time application of IAS and a project on the Preface of the standards that dealt with the so-call black/gray lettering issue.

And lastly from the accounting profession, the International Federation of Accountants or IFAC has drafted documents for an international oversight mechanism.

External versus Internal Users

Generally, accounting information is used to help make decisions that affect the allocation of scarce resources, including labor, materials and capital. The users of accounting information may be divided into two groups: first, the internal users, who make decisions directly affecting the internal operations of an enterprise, like the managers of the business who will want to know how things are going. They need financial information in order to plan for the future; they then need more up-to-date information in order to check whether actual performance is on target. This process is known as controlling the costs and finances. In accounting it is known as management accounting. So, management accounting is done by the managers, for the managers, for the purposes of planning and control.

Then, there are several groups of people who may have an interest in the finances of the business, like the shareholders. The law says that they have a legal right to certain information. The whole process of providing this information (and of maintaining a book-keeping system capable providing it) is known as financial accounting.

The internal users have a multitude of management decisions to make that require accounting information, such as adding or deleting product lines, selling divisions, pricing goods, paying bonuses, expanding plants, and preparing budgets. The information needed by internal users is usually more detailed than that provided to external users.

Secondly, there are external users, who use the information to make decisions concerning their relationship with the enterprise. This group might include creditors, investors, government and the general public. Capital flows and information - particularly financial information - is the critical currency for investors seeking returns and for companies seeking capital to grow. The external users do not have direct access to the records of the company. They must rely primarily on the information that is made available to them by the accountants and auditors.

Accounting is the language of business. It is and always will be the analysis of how money is used by businesses, non-profit organizations, governments and individuals. While technology has largely replaced the most tedious work, the challenges of interpreting and communicating the impact of strategies and decisions are demanding a new accountant. The accountant of the future will need to be an innovative problem solver, adept communicator/team player, competent technological genius and astute legal expert. These are the skills that will drive relationships with regulators, peers and clients and ensure the future of the most trusted of the professions.