Goals & Objectives in Accounting

Proper accounting is very important for almost any size business, especially if it interacts heavily with investors and creditors.

The practice of accounting is important to most business operations, and often for good reason. Accounting serves a number of critical goals and objectives for companies, their investors and their creditors. Using generally accepted accounting principles, businesses can help avoid legal trouble and also ensure that their performance is comparable to that of other businesses. Learning about the primary goals and objectives in accounting helps make sense of why accounting is so important to business.

Reporting Business Performance

One of the main goals of financial accounting is to provide reliable, accurate and meaningful reports of a business's financial performance to outside parties. In most cases, investors and creditors expect to be able to review a business's finances before agreeing to invest or loan money -- and generally accepted accounting principles provide a clear and uniform way to do this. Businesses that use accounting have better access to capital and credit than those that don't, owing to their ability to provide their lenders and owners with the information they need to make decisions.

Management Assessment

While businesses especially need accounting when reporting to outside parties, it is often critical to internal management processes as well. Generally accepted accounting principles help to ensure responsible management of the company's finances. Accounting also provides managers with a clear assessment of their own performance and with the ability to evaluate their decision-making or identify areas for improvement. Accounting gives information to employees that might help them meet the business's expectations.

Strategic Planning

Accounting is a powerful tool in business planning. With a clear understanding of their performance, businesses are able to get a better idea of what they need to do in order to drive growth and deliver profits. Accounting offers the capability to provide measurable planning goals and develop effective budgets. Businesses with the ability to intelligently examine their costs are also more likely to be able to contain them, and to enjoy a competitive advantage over businesses that cannot.

Regulatory Compliance

Finally, another one of the objectives of the accounting profession is to help businesses meet the requirements of the law and avoid litigation or penalties. This is especially true of publicly-traded companies that are subject to the regulations of the Securities Exchange Commission. The SEC and other regulators are traditionally involved in the practice of developing effective and transparent accounting standards, and provide oversight of corporations to enforce the law and protect investors from fraud. The Financial Accounting Standards Board, or FASB, sets standards for private businesses and nongovernmental entities that the SEC officially recognizes as "authoritative."

References

• "Financial Accounting"; Robert Libby et al.; 2001
• Internet Center for Management and Business Administration; Financial Accounting; 2010
• UCLA: Principles of Regulatory Compliance
• "Principles of Accounting"; Introduction to Managerial Accounting; Larry Walther; 2009
• Temple University; Strategic Management Accounting and Control; Rajiv Banker and Holly Johnston
• Securities Exchange Commission; The Roles of the SEC and the FASB in Establishing GAAP; Robert Herdman; 2002

Resources

• University of Maryland; Planning and Control Framework; Lawrence Gordon
• "Social Accountability Standards": Legal Framework and Fund Accounting