Dealing with Accountability in Banking

Posted by financer | July 5, 2010 .

Success in business is measured primarily by the excess of revenues over expenses from the business operation that produces the net income. However, Investors and creditors will only determine the ultimate success of an entity upon liquidation.

What do accountants do to provide investors and creditors an approximate financial status of the business? All transactions are accounted for on the accrual basis. The accrual process introduces the potential for managers to manipulate the period when revenues and expenses are recorded resulting to income.

The estimation process inherent in accrual accounting provides most opportunity for abuses. A bank, for example, can overstate reported income by understating the expenses associated with bad debt losses. Resorting to “creative accounting”, a company can change from one accounting method to another in order to increase its reported income.

Accountability is present in all aspects of life and is related to the social nature of human beings. Because of this, people need other people in business affairs. But some people are also selfish and this tendency causes exploitation of other people. One way society maintains a balance is through rules and mutual accountability.

Accountability is therefore related to a system of order and authority. Organizations can run smoothly when someone in charge is held accountable for results. Without truthful accountability it will be difficult to make decisions that would underscore the success of an entity.

Being an officer or employee, one has to be diligent enough when the employer is not around. Be faithful and blameless by not working to pursue dishonest gain.