QUALITY ACCOUNTING PRINCIPLES AND INFORMATION IMPLICATIONS FOR THE COMPANY S MANAGEMENT

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1 Finances - Accounting QUALITY ACCOUNTING PRINCIPLES AND INFORMATION IMPLICATIONS FOR THE COMPANY S MANAGEMENT Assoc. Prof. Alina-Teodora Ciuhureanu Ph. D Romanian-German University of Sibiu Faculty of Economics Sibiu, Romania Abstract: Quality is reflected in accounting with impact on the exploitation, generation of opportunities and reduction of limitations. Since accounting information underlies management decisions, general management functions, we believe that meeting standards of quality found in the form of principles and specific characteristics, constitutes a starting point towards a better management of resources, a competitive general management, providing optimum conditions for a better future to the company. Starting from this aspect, the work translates quality accounting principles in terms of information implications for the company s management, being based on an exploratory research. Moreover, theoretical aspects are then analyzed by the selective survey conducted on a sample of 301 companies from 7 Centre Development Centre. JEL classification: M40, M41, M10 Key words: accounting, principles, quality, management, information 1. RESEARCH OF SPECIALIZED LITERATURE AND STATUTORY REGULATIONS ON THE QUALITY ACCOUNTING PRINCIPLES. INFORMATIONAL IMPLICATIONS FOR THE COMPANY S MANAGEMENT According to ISO 9000:2006, quality management aims to coordinate the activities in view of guiding and company control. Dragolea Larisa (2006, p. 1), associates quality management with accomplishing the objectives set in accordance with an optimal use of resources. The specialized literature on quality presents the concepts and characteristics of quality referring to product/service and customer/consumer. As in quality management we talk about principles, quality features, standards, procedures, we can also address these features in accounting. We may ask what the connection between quality management, accounting information and general management is. We believe that there is a very strong connection and we can begin from the definition of quality given by Liviu Ilieş (2003, p. 13) who says that this is all the characteristics or performance of a good/service that determines its ability to conform, to match the destination given by the customer, to the customer s intended use. Thus, in our own sense, the good/service spoken of in quality is the accounting information and the customer/consumer is translated into the information user. Quality management is governed by a set of common principles, each finding its applicability in accounting (figure 1). To speak of quality in reporting the information supplied by the accounting information system, a series of principles clearly defined in the law must be met - OMPF 1802/2014. We shall further address these principles from the information perspective for the management. 5

2 Revista Tinerilor Economişti (The Young Economists Journal) The principle of permanent collaboration The principle of user orientation collaboration of professional accountants with the management and the other categories of staff collaboration of professional accountants with the external environment in order to obtain information accounting information has to meet the information needs of user transparent reporting The principle of continuous improvement Zero defects principle The principle of human and technological resources development The principle of measuring results and effectiveness awareness of the usefulness of accounting information for the management social responsibility adjustments depending on the results of external controls, "listening" to the auditors implementation of accounting procedures professional ethics organization of internal control, internal audit computerization of the accounting information system participation in development programs in finance and accounting use of information technologies and their improvement exploitation of accounting information in management in the light of its specific functions Source: own processing Figure no. 1 Implementation of quality management principles in accounting A first principle is considering business continuity targeting the assumption of not entering into liquidation of the company or a significant reduction in activity. From an informational perspective, this principle finds its utility by the fact that managers / administrators are required to assess the available information on the results of operations and the financial position for the next period, giving users the confidence that the company has the ability to perform the work in the future. The principle is directly correlated with the prediction function of management. It extends its scope from merely putting manifestation of events, to ensuring all the information that is available to prevent difficulties, avoid crisis and provide the necessary elements for an effective forwardlooking management (Toma, 2002, p. 30). The principle of methods continuity requires consistency in the application of accounting policies and methods of evaluation. From the information perspective this principle is needed because it gives confidence to users that the methods used in accounting are maintained from year to year provided that their change generates changes in the outcome. If for various reasons it was decided to change the evaluation methods, the impact should be presented in the explanatory notes. In his work Common sense as a paradox, Alexander Paleologu said that prudence is the art of controlling risk. This brings us to another principle of quality - prudence - which requires a prudent basis for recognition and measurement in order to develop 6

3 7 Finances - Accounting financial statements. Perhaps not coincidentally, this principle is seen as a cornerstone of financial accounting because its application protects the company, but more especially users of information against subjective evaluations, risks and uncertainties. Despite the fact that this principle leads to protection of assets, liabilities and equity ignoring the earning potential of the company, it contributes to the quality of information because it requires fair and complete presentation and company s situation. (Toma, 2003, pp ) A principle regulated by the appearance of OMPF 1802/2014 aims the accrual accounting - transposition of ABAC (Accrual Based Accounting), which requires recognition of events and transactions at the time when they happened and not one those involving cash inflows and outflows or equivalent. Among the opportunities brought by management, we may mention the efficient scheduling of resources, the performance evaluation compared with similar entities, providing a basis for future decisions based on performance, can lead to a system of responsibilities for expenditure and revenue related to receipts and payments, contribute to accountability and transparency in reporting, provide quality information for planning and resource management, enables knowing income and expenses, etc. (Tăîț, 2002; Devli, online). The limit is given, however, by the fact that taxation and the desire to postpone taxes, with the temptation to postpone the issue of sales documents to reduce taxable base. Intangibility principle provides correspondence of the closing balance of the previous year with the opening balance of next year. Compliance with this principle has as effect in management the correct information to users, increased comparability both with the financial statements of prior periods and with the financial statements of other companies, facilitating the verification of integrity of assets, liabilities and equity. Another principle relates to the separate evaluation of assets and liabilities, being closely linked to the principle of non-compensation. The objective of these principles lies in finding an optimal balance between quality of information and level of detail. Too detailed, the information becomes unreadable; too synthetic, it becomes insufficient (Feleagă & Ionaşcu, 1998). If these principles did not exist, the role of financial statements information would no longer have any meaning, yielding results that do not reflect the truth about the situation of the company and managerial performance. The quality of accounting information is also required by underlining, through the accounting operations and their presentation of the economic substance of the transaction or commitment. Thus, management should adopt policies to ensure the development of financial statements generating credible information that would give priority also to the economic substance and not just to the legal one in the presentation of events and transactions, finally leading to the true and fair image, highlighting debt and receivables and the associated risks (OMPF 1802/2014). Compliance with this principle is also in the interest of giving users confidence in the statements offered. Another new principle is the assessment for the cost of acquisition or cost of production, except as provided in regulations. Compliance with this principle gives uniformity of the reported accounting information especially given that by Order 1802/2014 the two concepts of cost are very clearly defined. It also reduces the possibility to decrease or increase costs and thus the negative or positive effects on the result. Of course that the principle can be viewed as a limitation in specific conditions of information needs, but it provides opportunities for taking decisions for the management and for all users.

4 Revista Tinerilor Economişti (The Young Economists Journal) The principle of materiality, with Anglo-Saxon origin, provides that the entity deviates from certain requirements only if the effects are considered insignificant. We could say that this principle relaxes to some extent how to report accounting information. Thus, in its information function, management must disclose, through financial statements, all items whose importance is able to affect the judgments and decisions of external users, who may act differently in the absence of significant information. The information reaches materiality if failure of presentation or false declaration has the power to influence the decisions of users. Establishing this principle into practice involves professional judgment and a detailed knowledge of the company given that an error considered insignificant for an entity may be significant for another (Costi, 2012, pp ). We believe the principles presented can be regarded as the basis of efficiency and management performance because by complying with them, the information provided to the outside is credible, leading to the team and company credibility. Effectiveness and efficiency of accounting principles are subordinated to the requirements of general acceptance, credibility, objectivity, analytical nature, scope (Bostan & Grosu, 2010, pp ). Each of the principles listed has implications in accounting communication both externally and within the company, being directly related to the quality of accounting information. Highlighting the degree to which Romanian companies comply with the principles of accounting information reporting was one of the objectives pursued by a selective research conducted, results and conclusions being presented below. 2. QUALITY CHARACTERISTICS - PREMISE OF ACCOUNTING INFORMATION USEFULNESS. Implementation of quality requirements for accounting information, considered a mass consumer good (Feleagă & Ionaşcu, 1998, p. 241), assumes that it tends to lose its absolute character, becoming a commodity that can be traded at any price, depending on interests. Regardless of the purpose and means of communication, meeting users of accounting information needs must be continuously measured and assured through quality. But this is difficult in practice because the quality ultimately depends on what we want to know or what we believe is useful. In our country, by 2015, accounting information quality characteristics have been regulated by Order 3055/2009 (repealed at present), being summarized in: intelligibility, relevance, reliability, comparability. Currently, qualitative characteristics of accounting information presented nationally are harmonized by Order 1802/2014 with the opinion of Conceptual Framework for Financial Reporting. Therefore, the qualitative characteristics are divided into two categories, namely fundamental qualitative characteristics and amplifying qualitative characteristics (Table 1). In theory, to prove its usefulness, it is necessary that those features are achieved simultaneously and cumulatively. In practice, however, the achievement may depend on the professional judgment and we consider that whatever the perspective we look from at the quality characteristics, they must fulfil their purpose, namely that users make decisions with greater confidence, the benefits exceed the cost of information and that there is a balance of these features. Table no. 1 Qualitative characteristics of the accounting information current situation Fundamental qualitative characteristics Relevance: generates differences in users decisions through the predictive and/or conformity value, by the materiality that depends on the item or error, judged in the context of omission or inaccuracy. 8

5 9 Finances - Accounting Accurate representation: given that perfection is rarely or ever achieved, however, the information must be complete, neutral and without errors. The term accurate representation replaces the term of reliability. Amplifying qualitative characteristics Comparability: it allows identifying and understanding the similarities and differences of information. Thus, it is considered that the information is more useful when comparisons with similar information from other entities and by the same entity in a different period are allowed. The feature does not require uniformity and is not identical with consistency, comparability being a goal achieved through consistency. By comparability, users receive briefings on the company's accounting policies and have a greater capacity for analysis of the changes and their effects. Verifiability: ensures users that the accounting information can be used with confidence, representing the exact events and transactions which they propose to represent. Verifiability is satisfied either by direct check or by indirect verification, according to OMPF 1802/2014. Opportunity: information is available to users in time to be used in decision making-process. Intelligibility: refers to the classification, characterization and clear and concise presentation of information, while the information can often be altered even by users by misunderstanding or ignorance of the accounting language. This quality feature does not imply that the complex information is excluded from the reporting only on the grounds of complexity. There is the need for users to have the knowledge needed to understand the accounting language. Source: processing according to OMFP 1802/2014 and the General conceptual framework for financial reporting 3. METHODOLOGY OF RESEARCH, OBJECTIVES AND HYPOTHESES The research conducted aims to bring attention to the quality of accounting information through the principles and quality characteristics required. This research is part of a more complex study, conducted on a sample of 301 companies active in the Central Region. Given the approaches presented in the specialized literature, the research conducted a quantitative survey-type selective research. In formulating the hypotheses the information and conclusions presented in the previous studies were taken into account, the information obtained from the study of complex bibliographies, information obtained from my own professional activity, information and conclusions drawn from the establishment and publication in specialized journals by the author of other studies. Objectives and research hypotheses are presented in table 2. Table no. 2 Objectives and research hypotheses Central objective Main hypothesis IP1 Quality management principles are respected in an average measure. Q1 Analysis of compliance IP2 In companies, accounting principles are heavily respected and their with quality accounting regulation provides opportunities for the exploitation and usefulness of the principles in terms of information. exploitation and usefulness IP3 Accounting information conveyed meet the characteristics of quality in a of information. great extent. Research variables in terms of the name, operational definition and type are presented in table 3. Table no. 3 Research variables name, operational definition and type Name of the Operational Central objective Type variable definition (code

6 Revista Tinerilor Economişti (The Young Economists Journal) Q1 Analysis of compliance with quality accounting principles in terms of exploitation and usefulness of information.. Quality of accounting information taken from the questionnaire) V18 V19 V22 V23 Multiple choice / 5 steps Likert Scale Multiple choice / 5 steps Likert Scale Multiple choice / 5 steps Likert Scale Multiple choice / 5 steps Likert Scale For information collection the direct research method was used. The survey was un-dissimulated, the aim being known from the beginning by the respondents. To establish the non-probability random sampling was used, using the snowball method. Defining and building the sampling base was done using data from the National Statistics Institute from the Counties of Alba, Brașov, Covasna, Harghita, Mureș and Sibiu. The number of valid questionnaires was 301 generating a response rate of 42.16% and a margin of error o ±5,63%. 4. CONCLUSIONS DRAWN FROM THE SELECTIVE RESEARCH Under this objective we sought, first, to highlight the extent to which the surveyed companies comply with the principles of quality management in the accounting information system, the operational variable V23 being formulated in the questionnaire. The answers are processed in table 4. Table no. 4 Compliance with the quality management principles in the accounting information system Principles to a very to a very to a very to a very to a very small extent small extent small extent small extent small extent Total % A. Principle of permanent collaboration Percentage % 10,63 24,92 3,99 31,56 28,90 100,00 Score = 3,23 B. Principle of user orientation Percentage % 18,60 34,22 14,62 23,26 9,30 100,00 Score = 2,54 C. Principle of continuous improvement Percentage% 11,96 33,55 28,24 14,29 11,96 100,00 Score = 2,68 D. Zero defects principle Percentage % 15,95 52,82 22,26 6,64 2,33 100,00 Score = 2,17 E. Principle of human and technological resources development Percentage % 19,27 54,15 14,62 9,30 2,66 100,00 Score = 2,22 F. Principle of measuring results and efficiency 10

7 Finances - Accounting Percentage % 33,89 35,22 19,27 6,98 4,65 100,00 Score = 2,03 General score = 2,48 Looking at the scores for each of the principles, the only conclusion we can think of is related to a disaster. It is obvious that companies from 7 Centre Development Region comply to a small extent with the quality management principles, the overall score obtained being Thus, one can not speak of management collaboration with internal and external environment through the provision and collection of accounting information or necessary to accounting, transparent reporting, social responsibility, implementation of accounting procedures, ethics, organization of control and/or internal audit, the permanent connection of the accounting information system to technical novelty, continuous professional development, exploitation of accounting information in management etc., each forming actually the quality management principles. We can only to find that the hypothesis launched (IP1 - Quality management principles are respected in an average measure) is invalidated in a negative direction. To motivate the use of the term disaster, we mention that, according to statistics of the National Trade Register Office, in May 2015, 81,848 companies became insolvent. It may seem a small figure compared to the number of existing companies but we must relate to active companies (not in terms of filing out the annual financial statements but in terms of turnover). According to experts from KeysFin, Romania is the country with the highest rate of insolvencies in the total number of companies, with percentages dozens of times higher even than Poland or Hungary. We are aware that the accounting information does not solve the financial problems arising from non-collection, decreased sales, etc. crisis, but it provides opportunities to identify them with the role of guarding companies from inherent risks. Accounting principles can not function without specific quality principles and their compliance also results in opportunities and limitations in the exploitation or usefulness of the information generated. In light of the above, operational variables v18 and v19 were formulated in the questionnaire in order to analyze the extent to which companies comply with the accounting principles and the determination of opinion on their necessity in light of capitalization and usefulness of accounting capitalization. Information on the accounting principles are presented in table 5. Table 5. Complying with accounting principles Valid 301 Frequency Percentage Valid percentage to a very small extent 0 0,00 0,00 to a small extent 6 1,99 1,99 neither to a small, nor to a large extent 4 1,33 1,33 to a large extent ,22 34,22 to a great extent ,46 62,46 Total ,00 100,00 Score 4,57 Based on the results obtained the following consideration can be formulated: most of the companies in the sample (62.46%) state that they respect in a great measure the accounting principles, while 34.22% believe that these principles are respected greatly. 11

8 Revista Tinerilor Economişti (The Young Economists Journal) The score obtained is Regarding the need for regulation of accounting principles as an opportunity for the capitalization and usefulness of accounting information (table 6), we note that most respondents (51.83%) consider it is necessary in greatly 18.27% regard the regulation as very necessary and 12 96% do not consider it necessary. The score obtained is Table no. 6 Regulation of accounting principles represents an opportunity for the exploitation and usefulness of accounting information Valid 301 Frequency Percentage Valid percentage to a very small extent 21 6,98 6,98 to a small extent 18 5,98 5,98 neither to a small, nor to a large extent 51 16,94 16,94 to a large extent ,83 51,83 to a great extent 55 18,27 18,27 Total ,00 100,00 Score 3,68 The hypothesis advanced before the research (IP 2 - In companies, the accounting principles are respected in a great extent and their regulation provides opportunities for the capitalization and usefulness of information) is confirmed. Therefore, we can say that the companies surveyed comply with basic standards of quality and believe that regulations in this respect are beneficial, opportunities, utility and capitalization being imposed by them, finally being diminished the risk of not receiving consistent and transparent information. Another aspect of quality accounting standards relates to quality characteristics, to the surprise of which the operational variable v22 being formulated in the questionnaire covering the five characteristics. The answers were processed in table 7. Table no. 7 Quality characteristics of the accounting information Characteristics neither to a to a very to a small small, nor to to a large to a great small extent extent a large extent extent Total % extent A. Relevance Percentage% 30,56 39,87 16,28 8,97 6,64 100,00 Score = 2,28 B. Accurate representation Percentage % 1,33 1,00 1,99 48,84 46,84 100,00 Score = 4,39 C. Comparability Percentage% 0,00 3,99 4,65 41,20 50,17 100,00 Score = 4,38 D. Verifiability Percentage % 2,33 9,63 25,91 43,52 18,60 100,00 Score = 3,66 E. Opportunity 12

9 13 Finances - Accounting Percentage % 10,96 13,95 45,85 16,28 12,96 100,00 Score = 3,06 F. Intelligibility Percentage % 2,66 5,98 12,62 31,89 46,84 100,00 Score) = 4,14 General score = 3,65 Regarding compliance with quality characteristics of accounting information, we notice that the majority of them are respected greatly. The highest scores were obtained for accurate representation (4.39), comparability (4.38) and intelligibility (4.14). Thus, the respondents consider that the accounting information generated and provided is comprehensive, neutral and without errors, allowing users to identify and understand the similarities and differences between elements, they are classified, characterized, and presented clearly and concisely. A low score of only 2.28 was obtained for the fundamental characteristic of relevance which shows that the information have, to a small extent, the ability to generate a difference in the decisions made by users. With an overall score of 3.65, we conclude that the hypothesis (IP2 - Accounting information conveyed meet the characteristics of quality to a large extent) is confirmed. Of course it would have been ideal that information complies with these requirements in a great extent but as improvements are always needed, this aspect should also be considered by companies by people in their management. 5. FINAL CONCLUSIONS A first contribution to the work presented is to inventory management principles Quality (ongoing collaboration, oriented towards users, continuous improvement, zero defects, human and technological resources development, measuring results and effectiveness) and personal approach to translate them into accounting. Moreover, regulated accounting principles have been presented in a personal manner for the management in information perspective, being related to the need to respect them through the integration of management functions and usefulness in decision making. Regarding these issues through the selective research about highlighting the extent to which the companies surveyed respect the principles of quality management in accounting information system we concluded that companies from 7 Centre Development Region respects them to a small extent. Thus, one can not speak of collaboration of management with internal and external environment through the provision and collection of accounting information or necessary for accounting, transparent reporting, social responsibility, implementing accounting procedures, ethics, organization of control and/or internal audit, the continuous connection of the accounting information system to new technologies, continuous professional development, capitalization of accounting information in management etc., each forming actually the quality management principles. Another objective was aimed at analyzing the degree to which companies respect the accounting principles and determining the opinion on the need in terms of capitalization and usefulness of accounting information. The conclusion is that the surveyed companies comply with the basic standards of quality and consider that

10 Revista Tinerilor Economişti (The Young Economists Journal) regulations in this respect are beneficial, capitalization opportunities and utility being imposed through them. The scientific-theoretical perspective took us on the road of presenting the fundamental and amplifying qualitative characteristics of the accounting information because, irrespective of the purpose and means of communication, meeting the needs of users of quality accounting information must be ensured continuously. We emphasized that in order to prove their usefulness, it is necessary that those features are achieved simultaneously and cumulatively, given that practice shows that the achievement can depend on professional judgment. The selective research concluded that most qualitative characteristics are largely respected by the companies surveyed. Of course, it would have been ideal that the information complied with these requirements in a great extent but as improvements are always needed, this aspect should be considered by the companies through the persons in their management. REFERENCES 1. Dragolea, L. L. Managementul calității-funcții și principii, Annales Universitatis Apulensis Series Oeconomica, nr. 8/2006, vol Ilieș, L. Managementul calității totale, Colecția Universitaria, Ed. Dacia, Cluj Napoca, Toma, C. Modalităţi de asigurare a imaginii fidele. Principii şi convenţii contabile, Contabilitatea, expertiza şi auditul afacerilor, nr. 10/ Toma, C. Relaţiile dintre principiile contabile şi imaginea fidelă, partea I, Contabilitatea, expertiza şi auditul afacerilor, nr. 7/ Tăiț, D. (coord.) Studiul ad-hoc no. B-4 Impactul pentru România al introducerii contabilității de angajamente pentru instituțiile publice, Raportul final, București, David Devli Modernizarea conturilor UE. O mai bună gestionare a informației și transparență sporită, Online, ernising_eu_accounts_ro.pdf, accesed february Feleagă, N., Ionaşcu, I. Tratat de contabilitate financiară, vol. I, Ed. Economică, Bucureşti, Boby, C. Pragul de semnificație în activitatea profesioniștilor contabili, Contabilitatea, expertiza și auditul afacerilor, nr. 2/2012 Principiile contabile și controlul intern o evoluție în paralel, Contabilitatea, expertiza și auditul afacerilor, nr. 2/ Bostan, I., Grosu, V. 10. * * * Ordinul Ministrului Finanțelor Publice nr. 1802/ pentru aprobarea Reglementărilor contabile privind situațiile financiare anuale individuale şi situațiile financiare anuale consolidate, M. Of. nr. 963/ , cu modificările ulterioare 11. * * * Cadrul general conceptual de raportare financiară, IASB, * * * Standardele Internaţionale de Raportare Financiară emise la 1 ianuarie 2011, partea A, Ed. CECCAR, Bucureşti, * * * de firme, în insolvenţă! Cu cine şi în ce condiţii mai poţi să faci afaceri în România, KeysFin, june 2014, Online, accesed may html, accesed september