Power, Responsibility and Accountability in Accounting

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The responsible use of power in decision making has always been the key to business success. People in key positions must have sufficient power to make significant business decisions in order to enhance businesses’ growth. Responsible decision making, facilitated by use of various accounting tools, enhances a business’ power. Conversely, questionable accounting and irresponsible business decisions can have catastrophic consequences. Contrasting international examples will be discussed here. Richard Branson, a well known entrepreneur, created an empire (the Virgin Group) from an idea of a better priced and better product for the market. Lehman Brothers, a firm with a historically distinguished reputation, who took irresponsible risks in pursuing increased profits and increased market penetration, eventually brought about its own demise. Within Australia, accountability is imposed on companies by the Corporations Act 2001 (Cwlth) in order to promote responsible use of power and rigorous accounting practices, and to maintain market stability.

Accounting information underpins all business decisions because it provides the information required to make responsible decisions. While opportunities for businesses to diversify their income stream can be seen as positive, some key plans need to be mapped out such as opportunity, risk, finance and social responsibility. Managers of business use vast amounts of accounting and economic data, such as product demand and price value information before undertaking new ventures. This will give some indication of how well an investment in that venture will fare. Birt et al. (2008) states that while accounting cannot be used to predicting exact outcome of a venture they can use historical information to trend past performances of other business entities. In undertaking a venture the entity would prepare budgets for personnel, marketing, property and equipment acquisitions in its budget. As part of the planning process managers need to be diligent and review all options presented before them Garrison and Noreen (2003) state that managers must evaluate the financial, implications of decisions that require tradeoffs between the costs and the benefits of different alternatives as part of a business strategy.

Accountable use of power in business making decisions, by responsibly meeting the demands of the market, can reap significant financial rewards. Richard Branson’s response to difficulties encountered in accessing quality financial products is one example of a person with power making a conscientiously motivated and financially rewarding decision. Capell (2007) states “(w)here most see turmoil, some see opportunity. And [sic] few are more opportunistic then Richard Branson”. Branson was tired of paying 5% interest for his financial contract to a financial service company, so he decided to start a new financial company of his own. Virgin Direct was founded in 1995 to compete with other financial institutions in the United Kingdom (UK). The business plan was simple: to create a banking/finance system that worked for its customers with very competitive pricing. Virgin Direct, as part of its original business portfolio, offered life insurance, retirement plans and cash management accounts. The company eliminated fine print and hidden fees in these products, and quickly won over customers from the competitors. Grant and Neupert (2003) state that these products indeed had lower management costs and better performance than almost all managed funds in the UK market. Virgin Direct eventually won over 250,000 customers and acquired $1.5 billion under management (Grant and Neupert 2003). As a consequence of its responsible use of power, and continued financial success, the Virgin Group continues to be recognised as trustworthy, when presently other banks are not (Jarvis 2010). This trust has increased the company’s power, allowing it to continue to expand its interests in the financial sector, such...
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