Accounting contains elements both of science and art. The important thing is that it is not merely a collection of arithmetical techniques but a set of complex processes depending on and prepared for people. The human aspect, which many people, especially accountants, forget, arises because:

1. Most accounting reports of any significance depend, to a greater or lesser extent, on people’s opinions and estimates.

2. Accounting reports are prepared in order to help people make decisions.

3. Accounting reports are based on activities which have been carried out by people.

But what specifically is accounting? It is very difficult to find a pithy definition that is all-inclusive but we can say that accounting is concerned with:

Examples of resource allocation decisions are:

• Should an investor buy or sell shares?
• Should a bank manager lend money to a firm?
• How much tax should a company pay?

As you can see, accounting is needed in any society requiring resource allocation and its usefulness is not confined to ‘capitalist’ or ‘mixed’ economies.

An accountant is concerned with the provision and interpretation of financial information. He does not make decisions. Many accountants do of course get directly involved in decision making but when they do they are performing a different function.

Accounting is also concerned with reporting on the effects of past decisions. But one should consider whether this is done for its own sake or whether it is done in order to provide information which it is hoped will prove helpful in current and future decisions. We contend that knowledge of the past is relevant only if it can be used to help in making current and future decisions, for we can hope that we shall be able to influence the future by making appropriate decisions but we cannot redo the past. Thus the measurement of past results is a subsidiary role, but because of the historical development of accounting and, perhaps, because of the limitations of the present state of the art, “backward looking” accounting sometimes appears to be an end in itself and not as a means that will help in achieving a more fundamental objective.

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