Beyond Debit and Credit: The Role of Accounting in Decision Making
Seda BayraktarAccounting function plays a critical role in the governance and management of companies, particularly in the decision making process. You must have heard many stories of companies which went bankrupt due to accounting scandals or unlawful acts of accountants.
Let me give you two striking examples: One of the largest energy companies in the world: Enron and 70-year-old poet, singer and songwriter Leonard Cohen. And, I can assure you that the number of companies which you know went bankrupt or individuals who went broke because of accounting failure is much less than those you do not know.
Every day companies are inevitably required to make decisions in the business environment. Strong decision making helps companies select the best business opportunities which in turn help companies be sustainable. Nobody argues about the fact that transparency and accountability are vital for the sustainability of companies. Management should be transparent in making business decision, namely “how” and “why” questions as to the decision should be answered transparently. And, the management should be accountable for actions taken based on this decision. Transparency forces companies to face up to the reality of problems and makes company management more responsible considering the fact that the company management will have to justify their decisions and actions subsequently.
It is obvious that the good decision for a company depends on good financial data (management and financial accounting) where the accounting function takes the stage. Accounting systems are responsible for recording, analysing, monitoring and evaluating the financial condition and performance of companies, preparation of documents necessary for tax purposes, providing information support to many other organisational functions.
Each and every day, accounting function brings financial transparency to businesses through reporting complete, accurate, timely and understandable financial data. The accounting function promotes financial integrity and combats financial wrongdoings (such as assets misappropriation, corruption, misstatement of financial statements). To put it simply, they should generate accounting data free of errors and frauds that will pave the way for right decision-making by managements.
Language of Business & Accounting Communicator
If we call accounting as “the language of business”, do you have to speak this language? This is not very possible most of the time. All you need to do is to engage a good accounting communicator. However, be careful while choosing your “communicator” because good accounting definitely comes by professional accountant. I use the term of “professional accountant” here as the accountant who provides his/her services in accordance with ethical and professional standards. Professionalism and business ethics mean a lot here!
Before ending my remarks let me ask a question: What would happen if the company management or those who are charged with governance cannot obtain good quality financial data from the accounting function? The answer lies within.
Seda Bayraktar, CPA
