Financial Accounting for Decision Makers

THE CHANGING FACE OF ACCOUNTING
Over the past fifty years or so, the environment within which businesses operate has become 
increasingly turbulent and competitive. Various reasons have been identified to explain these 
changes, including:
M01 Atrill's Financial Accounting For Decis 51257.indd 16
18/03/2019 10:29

---

THE CHANGING FACE OF ACCOUNTING 
17
■ 
the increasing sophistication of customers;
■ 
greatly improved speed and sophistication of communication (particularly with the 
Internet);
■ 
the development of a global economy where national frontiers become less important;
■ 
rapid changes in technology;
■ 
the deregulation of domestic markets (for example, electricity, water and gas);
■ 
increasing pressure from owners (shareholders) for competitive economic returns; and
■ 
greater volatility of financial markets.
This new, more complex, environment has brought new challenges for managers and other 
users of accounting information. Their needs have changed and both financial accounting 
and management accounting have had to respond. To meet the changing needs of users, 
there has been a radical review of the kind of information to be reported.
The changed environment has given added impetus to the search for a clear conceptual 
framework, or framework of principles, upon which to base financial accounting reports. Vari-
ous attempts have been made to clarify their purpose and to provide a more solid foundation 
for the development of accounting rules. Work on developing a conceptual framework tries 
to address fundamental questions such as:
■ 
Who are the users of financial accounting information?
■ 
What kinds of financial accounting reports should be prepared and what should they 
contain?
■ 
How should items such as profit and assets be identified and measured?
The internationalisation of businesses has created a need for accounting rules to have an 
international reach. It can no longer be assumed that users of accounting information relating 
to a business are based in the country in which the business operates. Neither can it be 
assumed that the users are familiar with the accounting rules of that country. Thus, there has 
been increasing harmonisation of accounting rules across national frontiers.
How should the harmonisation of accounting rules benefit:
(a) an international investor?
(b) an international business?
(a) An international investor should benefit because the accounting definitions and policies 
used in preparing financial accounting reports will not vary across countries. This should 
make the comparison of performance between businesses operating in different coun-
tries much easier.
(b) An international business should benefit because the cost of producing accounting 
reports in order to comply with the rules of different countries can be expensive. Har-
monisation can, therefore, lead to significant cost savings. It may also broaden the 
appeal of the business among international investors. Where there are common 
accounting rules, they may have greater confidence to invest.
Activity 1.12
In response to criticisms that the financial reports of some businesses are opaque and 
difficult for users to interpret, great efforts have been made to improve reporting rules. 
Accounting rule makers have tried to ensure that the accounting policies of businesses are 
M01 Atrill's Financial Accounting For Decis 51257.indd 17
18/03/2019 10:29

---