Roles of Accounting in the Organizational Structure

Financial accounting provides the financial information required for users outside an organization to make informed, economic decisions. But within organizations, managers are generally more concerned with managerial accounting than with financial accounting. This is because management accounting encompasses both financial and nonfinancial aspects of accounting, and provides the necessary information to management for discharging various functions such as costing, planning, controlling, evaluation, continuous improvement and decision making. Often, accounting is seen as centrally concerned with the provision of information that enables management to make decisions and control business operations.

Agency problems invariably exist in all organizations, and internal accounting systems are important devices used to control these agency costs. One common way of limiting agency costs is to separate decision management functions from decision control functions. This can be accomplished through the use of specific accounting systems, such as budgets and standard costs. The internal accounting system used for performance evaluation provides an important monitoring function as it allows organizational performance to be assessed in definite, quantitative terms. But because these accounting numbers pertain to historical data, they are usually more useful in decision monitoring than in decision making. Moreover, such financial measures are often not as timely as nonfinancial measures when it comes to making operating decisions. For decision management, managers need relevant information that, sometimes, may not be completely objective or verifiable. Opportunity costs, for instance, are not captured by accounting systems or reflected in accounting data; however, they are important information that managers must consider in decision initiation and implementation.

As evident, accounting is primarily a control device in itself. While useful for control, it is not...