The objective of accounting is to provide both financial and non-financial information which is necessary for decision making. Accounting is a very broad field covering fields such as cost accounting, management accounting and financial accounting. However, all these fields interact with one another so as to provide useful information to the users of accounting information (Collier). Users of accounting information face a myriad of challenges and this hinders decision making.
Scope of accounting
Accounting broadly deals with; recording of transactions, classifying and summarizing transactions (Schwarzkopf, Breitner and Anthony). Accounting profession operates under a highly regulated environment so as to ensure meaningful information reaches the intended user. This also discourages malpractices and mismanagement of funds. Some of the standards used in accounting include IFRS and IAS.
Constraints faced by users of accounting information
Many organizations are managed by the managers who are appointed by the owners of the company. The managers acts on behalf of the owners of the organization and this creates the agency situation whereby the managers act as agents while the owners of the organization act as principal (Welsch and Anthony). The divorce between the ownership and control of an organization brings about the agency problem. This is because the owners of the organization basically do not get involved in day to day running of the organization and therefore delegates authority to the managers.
The agency situation brings about conflict of interest between the owners (providers of funds) and the managers. This arises when managers pursue self-interest at the expense of the interest of the owners of the organization. In some cases managers may adopt practices which may not be well understood by the shareholders. Generally, a majority of the shareholders of an organization lack requisite knowledge about how the organization operates and therefore relies on the managers to give them the information that they require concerning the organization (Baxter and Davidson).
In most cases, users of accounting information receive information on a periodic basis such as monthly, weekly, or even semi-annually. This means that there is a time lag between the time when a transaction takes place and when the same is reported in various accounting records such as income statement and statement of financial position. A fraud or error which took place a long time ago sometimes gets to be discovered very late when the impact is quite enormous. In some cases managers of a company fail to record all transactions in the respective accounting periods so as to reflect a better performance that the actual. This may be difficult for the users to discover since they do not go through all the accounting records but instead rely on summarized accounting records to make various decisions.
Accounting information is very critical in any organization and therefore accountants should ensure that it is timely, simple and relevant to the users. This can be done by putting in place elaborate accounting systems as well as use of well trained and qualified personnel who understood the various accounting regulations and make proper interpretations.
Baxter, William T., and Sidney Davidson. Studies in Accounting Theory. 2d ed. Homewood, Ill.,: R.D. Irwin, 1962. Print.
Collier, Paul M. Accounting for Managers : Interpreting Accounting Information for Decision-Making. 3rd ed. Hoboken, NJ: Wiley, 2009. Print.
Schwarzkopf, David L., Leslie Pearlman Breitner, and Robert N. Anthony. A Review of Essentials of Accounting, 7th Edition [by] Robert N. Anthony and Leslie K. Pearlman. Upper Saddle River, NJ: Prentice Hall, 2000. Print.
Welsch, Glenn A., and Robert N. Anthony. Fundamentals of Financial Accounting. The Willard J Graham Series in Accounting. Rev. ed. Homewood, Ill.: R. D. Irwin, 1977. Print.