Accountancy Essay Example | Topics and Well Written Essays - 2500 words

Accountancy - Essay Example But as any student of business knows, evaluation of managerial efficiency or corporate health is not that straightforward an issue. There are two reasons for that. Firstly, all organisations are not established with the objective of earning profit, especially those that are owned and operated by the public sector. If you feel confused at this comment, just think about the London tube railway. Though nobody would be unhappy if it could earn what is commonly known as commercial profit, would any citizen ever quiz the service it provides and, would any government ever dare to even think of discontinuing the service as it is not a profit making venture? Obviously not, since it was conceived as public utility. The second reason why profit calculated by the mercantile method is not always a true indicator of the commercial success of business enterprise is the accrual concept and the conservative approach which lie at the heart of any set of accounts prepared anywhere in the world. By taking into account all possible or even vaguely plausible expenses and ignoring all incomes except those that are absolutely sure, the accountant in effect tries to take a hyper conservative approach and presents a situation which cannot be worse. It might suit those at the helm of affairs of business houses, but these two basic tenets of accountancy do indeed paint a picture which is bleaker than what the actual situation is. Thus many stalwarts of accounting profession strongly feel that a trend of profits, instead of profits earned in individual periods and considered in isolation, would be a better estimate to gauge the financial health of an enterprise. And there is, rather was, a lot of confusion regarding how far conservatism could be stretched while drawing up accounts for a financial year. Some opinion makers of this profession were passionate about the independence of accountants and argued in favour of the