Importance of accounting to a nations economy

The paper examines previous research on the importance of forensic accounting on prevention of economic and financial crimes in Ghana and recommends the adoption of the International Financial Reporting Standards to prevent public and financial sector fraud to grow the economy of Ghana. Importance of Accounting to a Nation’s Economy Chapter One: Introduction The economy of a nation chiefly depends on trade and entrepreneurship. On the other hand, the professions provide a supporting role in the development of the economy. Accounting is one profession that plays a critical role in the national economy of any country. The direct application and use of accounting in trading activities that run the economy places the profession at the center of the economy. iii. It provides a basis for the discussion on the importance of the accounting profession in a national economy.

The discussion will be of use to governments for accounting policy development. Institutions of higher learning will use the discussion for other academic research. Variables This paper approaches the importance of accounting with the underlying acknowledgement of the users of accounting information. This study refers to both senses of investment at different points. The context and accompanying explanations however clearly identify the sense of the word in all uses. Fraud. Fraud is the intentional misappropriation of funds (in a business or in public office) to benefit the individual perpetuating the act to the detriment of the use for which the funds had been allocated. The persons perpetrating fraud are usually not the providers of the funds but trustees. This section is a review of existing literature on the role of accounting in economic development with a focus on its importance in economic planning, investment, fraud, financial services and international trade.

Review Economic Planning Economic planning is the backbone of a nation’s economic development informing the policies and priorities of the government to encourage economic development. According to Shembavnekar (2019), economic planning refers to the allocation of scarce resources to obtain their optimum benefit and satisfaction from the alternative uses they be put. In a national economy, the national government is responsible for economic planning. The aim is to allocate the government resources (taxes) to the neediest and priority areas to spur economic growth and development for the improvement of the lives of the people. The statements of financial position provide the government with the assets each business owns to establish national wealth. Public sector accounting provides the total wage expenditure of the sector to assist in the determination of national income.

Accounting, therefore, is the backbone of economic planning that in turn forms the foundation of the nation’s economic growth and development. Investment The income earned by the members of an economy is either consumed or invested in the generation of wealth in the future. According to Bakari (2017), investment is the driver of economic growth without which an economy cannot grow. From the perspective of the public companies, published accounting statements enable them to access the capital necessary for further investment. In both cases, the increase in wealth of the company or the individual all adds up to the increase in national wealth. Accounting, therefore, plays the vital role of appraising the appropriate investment vehicles for individuals in the economy. The investment grows the national economy. Prevention of Fraud Misappropriation of funds is a major deterrent of economic growth.

An accounting audit is the only existing tool for the detection of fraud in an organization. The elimination or minimization of fraud and financial mismanagement helps the national economy to grow. Banking and Financial Services Banks and other financial institutions are critical for any economy. They take deposits from individuals, businesses and the government for safekeeping as savings. The banks then use the savings to make loans to the other individuals, businesses and the government at a profit. Fund transfers through the banks originate from accounting activities. International Trade International trade is important for all economies because of the insufficient nature of production in all countries. Acharyya and Kar (2014) assert that each country has a competitive or absolute advantage in the production of some goods or services and lacks the same advantage in the production of other services.

The advantages arise from natural endowments in raw materials, the technical skill of the labor force, the culture of the countries and other unique factors that each country has in possession. International trade, therefore, enables countries to acquire goods and services that they cannot produce efficiently to meet their needs. Failure to capture the true value of the goods, services and currencies in exchange would make international trade impossible or very difficult. Accounting, therefore, facilitates international trade that in turn spurs local national economic growth and development. Case Study Ocansey (2017) studied the use of forensic accounting as a solution to the prevailing financial and economic crimes in Ghana. The author averred that fraud and embezzlement was a worldwide problem that not only affected the private businesses but that it affected the public sector as well.

Consequently, the investor confidence in the financial market had fallen, leading to decreasing investment out of fear of losing savings. The citizens thus received poor service and infrastructure from their government. The failure to provide economic infrastructure slowed economic growth. Ocansey (2017)’s study proposed forensic accounting as the solution to the endemic problem of embezzlement and fraud in the public and private sectors to boost Ghana’s economy. The research, therefore, focused on the extent of the applicability of forensic accounting in stopping embezzlement and fraud in Ghana. Ocansey collected data from the technical officers of Ghana’s Economic and Organized Crime Office using a census of the sixty-six officers. Alternative Solutions International Financial Reporting Standards (IFRS). International Financial Reporting Standards (IFRS) are a set of common universal rules in accounting language, accounting practice and accounting tools (IFRS 2019).

The standards were developed by the International Accounting Standards Board (IASB) to provide uniformity in financial statements and presentation of annual company reports. The standardization of the reporting would enable international trade across countries in the current globalized world. The adoption of IFRS in Ghana can assist both the private and public organizations in detecting fraud and embezzlement in time to prevent further misappropriation of funds. A gradual adoption can be considered where a wide gap exists between current standards and the IFRS. Step Two: Planning. The IASB (2013) recommends a definitive plan for the adoption of the IFRS. The plan should set the timelines for each activity from the beginning to the end. The body suggests the formation of an adoption committee to oversee the exercise and to enforce adoption. The first step is the collection of data.

The data used in financial statements come from daily transactions and periodic summaries. The data is recorded in common documents (the financial instruments). The data is then analyzed to identify the actual performance of the organization. The analysis is presented in standard financial statements that report the performance of the organization. Conclusion The adoption of the IFRS is an inevitable finality for all countries. The globalized nature of business forces all economies to operate under common standards for ease of trade. Nevertheless, urgent adoption would place Ghana in a competitive position with the rest of the economies. In addition, IFRS alone cannot prevent economic and financial crimes because of falsification of accounts. However, the professional accounting system would minimize economic and financial crimes to encourage trade and economic growth and development.

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