ACCOUNTANCY IN A FREE-MARKET ECONOMY

Russian: What is the role of accountancy in a free-market economy?

American: Well, in a free-market environment, accounting provides sort of a vehicle for transmitting information⁴ about the performance of enterprises to those with an interest in it.

R.: Would it be correct, in that case, to sum up the basic functions of accounting in a market economy as measuring economic activity of an enterprise and its profit, showing changes in its financial position and ensuring that a fair report of the economic status and performance is made available to all those concerned.⁵

Am.: Yes, you are right. I'd like to add that these functions are performed at two different levels.

R.: We know that your accountants communicate financial information to many people. What users need financial information?

Am.: I'm coming to the point. One branch of accounting, called managerial accounting, provides information that managers use in making decisions within the firm. Other accountants prepare financial reports for outside users. This branch of accounting is known as financial accounting.

R.: Financial accounting is only making its first steps in our country and we are having lots of teething problems. How does your accounting meet the needs of the users?

Am.: Our accounting standards and objectives of financial statements fully meet the users' needs for useful information.

R.: What basic principles ensure the provision of such information in the manner the market requires?

Am.: First of all, accounts must be prepared on a going-concern basis.

R.: What exactly does it mean?

Am.: It means accounting is based on the assumption that the business in question⁶ will continue to operate. Besides, accounts must reflect the economic substance of the situation rather than simply its legal form.

R.: What other characteristics make information useful for the users?

Am.: First of all, I'd single out relevance, timeliness, prudence, reliability, materiality, consistency, and comparability.

R.: As far as I know, these concepts are recognized internationally. But users of information often fail to get a true and fair view of business operations.

Am.: That depends on a number of factors. But I personally believe that in the present conditions, we all need to work harder to harmonize national accounting systems so as to make it easier for users to assess financial information.

R.: I can't agree more, particularly taking into account growth of transnational corporations and increasing interdependence of financial markets.

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