Accountant Theory Group Assignment

This Accountant Theory Group Assignment study about two fundamental cases of accountant management.

Accountant Theory – Case 1


Handel is one of the important and famous academicians and researcher in field of accounting practices has given a statement in year 1982. In this statement he stated that “things may exist independent of our account but they have no human existence without being accountable and things may not exist but they may take a human significance if they became accountable” accounts define reality and at the same time they are the reality. The processes by which accounts are offered and accepted are the fundamental and social process”. This statement is very complex in nature and it is always wondered by the students that what is the real meaning of this statement and what are the arguments which backs or criticizes this statement. In this report we will be analyzing arguments in favor and against the given statement.

Accountant Theory Group Assignment

Understanding the statement

In the above said statement the author is trying to gather attraction of students towards various accounting assumptions and taken for granted concepts which is a common practice in the accounting procedure. The statement indicates of many processes which cannot be accounted for in number but these impacts are significant for an organization or a company. Financial accounting is a process involving the collection and processing of financial information to assist in the making of various decisions by many parties external to the organization. These parties are diverse and include present and potential investors, lenders, suppliers, employees, customers, governments, and the local community, parties performing a review or oversight function, and the media. We can consider the concept of tangible and intangible assets in a balance sheet to capture the statement in a better way. Tangible assets are those assets which can be numbered and accounted in a accounting statement easily and proper allocation of figures can be given to their heads while intangible assets are the heads which cannot be accounted accurately or objectively. A good example of intangible assets for an organization could be brand value’ environmental impact or knowledge wealth accumulated with their employees and knowledge workers. All though in conventional accounting practices such assets of an organization cannot be earmarked or accounted for but in current business management where knowledge processing and environmental impact are very important attributes they cannot be neglected or an assumption about them can be made (Chavez, 2011).

By showing the importance of accountability of the intangible assets the writer is pointing out the importance of accountability of each aspect in a business organization. Author is of the opinion that without accountability even important aspect of an organization is of no impact in accounting world and they have no significance what so ever as far as an accountant is concerned and vice versa if a particular head or resource allocation center is accountable and can be incorporated in a accounting statement it is of importance for an accountant even if in real world it does not make any significant impact.

Arguments in favor and against

As a student I am of the opinion that writer is very correct in pointing out the importance of accountability of each process. Without accountability no process can be incorporated in an accounting statement and without a formal incorporation its impact on the organization can never be accounted. Over the years the people who are working with an organization might change but records will be permanently present and any expense or asset will be only important if it is in the records. As we are moving towards a more automated and globalized business pattern and services are being outsourced the importance of tangibility of intangible assets is becoming more important. When the writer says that account defines reality and they are the reality he emphasizes on the importance of accounts for backing any concept or situation (Cho and Patten, 2010). For example an organization is spending millions of dollars to maintain its social responsibility and environmentally friendliness if it is unable to show its impact on accounting records it would never be able to project its importance to its customers or real world or for that matter even to its auditors. Any auditing firm would not take the word of an organization that they are spending millions of dollars to ensure that there carbon foot prints are very low. Even for tax accounting exemptions and environmental clearance the accounts of the organization should have a proper allocation of resources in environmental head and it should be accountable. To incorporate these newly developed concepts in accounting practice a new form of accounting process is developed known as social accounting. Social accounting can be explained as a process of accounting in which social and environmental effects of an organization are communicated in a well return and documented form. This accounting process is also known as non financial reporting or sustainability accounting process (Ehrenfeld, 2004). This accounting process is also employed to justify the economic actions to a particular interest groups within society’ governments or to public in general It can also be explained as an approach of reporting an organization’s activities which are important on social norms. The basic aim and goal of such approach of accounting is to develop a procedure which is more objective and prepares a more accurate report for intangible and social assets of an organization. This approach will not only benefit the organization but is beneficial for the accounting professionals as well because if similar standards for social accounting process is adopted all over the world all organizations will be at par with each other and no ambiguity will be present over the accuracy and objectivity of the reports. These reports will be considered more neutral and more reflective of the current situation of an organization (Bruch and Walter, 2005).

A few academicians and researcher still doubts that “incorporation of social process in the accounting which is based on judgments and reasoning” is a good idea because these factors are basically subjective in nature and each individual might have different opinion about them. There is still a lack of a perfect framework or formula which can objectively define the social accounting process and provide same results every time it is used to process an intangible asset. A social accounting process is dependent on a lot of external factors which cannot be controlled or monitored constantly so their accurate incorporation is a difficult task to achieve. All though this argument is also valid and has a point but it does not supersedes the importance of intangible assets which are impacting an organization in a great way but cannot be accounted for because they have no accounting existence (Brugmann  and  Prahalad, 2007).

Case 2 (Mr.Hannes insider trading case study)


In this section of report we will be analyzing the well publicized case of Mr. Hannes who was an employee of the bank and he was accused of using his knowledge about bank’s decision making of backing TNT Corporation which was a logistics corporation at that time. The bank in question is Macquire bank and Mr. Hannes was a senior executive there at that time. He used the information of TNT’S take over and bought call options of the bank and earned an amount of 2 million dollars. He used the pseudo name of Mr.Booth to conduct this transaction and later he pleaded not guilty of both charges which were imposed on him by the court of law. In this report we will be analyzing the theoretical perspective of regulations which prohibits insider trading and develop a possible argument by advocates of free market approach to justify the removal of insider trading legislation (Sexton, 2008).  He was also accused of structuring the bank withdrawals to avoid the reporting requirements of Australian tax laws.

Laws imposed on mr. Hannes

According to the various regulations and laws discussed in the theoretical part of this course most suited law which should be imposed against Mr. Hannes is the corporation’s act of Australia which prohibits using any information which is a privilege of an organization for personal benefit by anyone who is involved in a financial or business transaction for gaining profits. Mostly the violations are done by employee or member of the organization. The act was redefined and enforced in year 2001 in the common wealth of Australia. The competent authority to conduct investigation in this case was Australian security and investment commission. The law clearly states that using such information which is not yet publicly declared for the personal benefit and framing a financial transaction which might help the criminal or any of its relatives/ friends to gain undue profits would be considered as a violation of the act. The regulations of the Australian security and investment commission are also very firm against such activities (Harris, 2003).

As a student of business studies I think the regulations which were used to develop a case against an insider trading are correct and the law is strong enough to properly investigate the case and provides a jurisdiction. Usage of any information which the offender is aware that it is not publically available or stumbling upon a problem in an organization during the work as a financial advisor or employee and then using that information to buy or sell shares to gain unreasonable profits is a serious violation of the corporation’s act 2001. The argument which is against the imposition of case against Mr. Hannes could be that he did not seek for the information during the normal course of work and he used his judgment to trust on It and gain profit. However in my opinion this is a weak argument because if all professionals like doctors or lawyers would start using the personal information of their clients for materialistic gains then the entire system and concept of ethical practices in the business would be destroyed and no professional would be able to gain the trust and confidence of the common people. The regulatory frame work of Australian security and investment commission is best suitable for the insider trading offences.

A Free market theory states that financial market stability are “informational efficient” which means any person cannot always earn more profits than the average income of the market consistently. This theory is applicable for all investment which is made after proper risk adjustment as per the information available to everybody at the time of investment.  The free market theory is classified into three forms depending upon their hypothesis. They are weak form’ strong form and semi strong form of free market.  The weak form only states that all assets which are traded in a market are purely based on the past information and reacting as a reflection of that information. The semi strong form of theory states that even though the prices of a asset are a reflection of the publicly available information but they also change in a dynamic way as soon as a new information is received by the market. The last form of free market hypothesis is known as the strong form which incorporates the clause of insider trading in it. The strong form suggests that prices are not just a reflection of publicly available information but it is a mixture of both publicly available and insider information which is received by the market continuously (Jung et al., 2005). Many academicians who are advocate of free market approach think that insider trading has its positive attributes as well along with the negative impacts. So prohibiting the insider trading in any form will have negative impact on the market as well.  These academicians believe that insider trading occasionally provide information which is good for the welfare of the society. This kind of insider information act as a corrective mechanism and it discourages the organization who are involved in activities like over valuing their assets’ artificially enhancing the company’s profits or knowingly hiding a major problem or complication from general shareholders (Fama, 1965). It is also proposed that a disclosure-based another approach can be developed which will help in maximizing the benefit of social welfare and minimizing the negative impact of insider trading.  The advocates of free market theory also states that the value of social well being and justice to the masses cannot be overlooked and if an insider information brings out the reality of an organization which can fraud the general population for millions of dollar it would be better to allow one insider trader to earn his profit and in return provides the information which might save the millions of dollar of public money. The concept which is used by the free market approach advocates is neglecting some minor irregularities for the greater good. Another argument which can be developed in favor of waving insider trading as a criminal offence is the right to save a one’s wealth and investment. If a person knowingly or unknowingly stumbles upon information which states that the return investment he has made is bad and the company is overvalued then he has a right to save his investment without publicly divulging the information (Grechenig, 2006).


  • Sexton, Elisabeth (2008). “Hannes given rare second chance”. Sydney Morning Herald. Available: Retrieved 2012-01-24.
  • Larry Harris, (2003) Trading & Exchanges, Oxford Press, Oxford, Chapter 29 “Insider Trading
  • Grechenig, (2006) The Marginal Incentive of Insider Trading: an Economics Reinterpretation of the Case Law, 37 The University of Memphis Law Review 75-148
  • Jung, Jeeman; Shiller, Robert (2005) “Samuelson’s Dictum And The Stock Market”. Economic Inquiry 43 (2): 221–228
  • Brugmann, J. and C. K. Prahalad (2007) Cocreating business’s new social compact. Harvard Business Review (February): 80-90.
  • Fama, Eugene (1965). “The Behavior of Stock Market Prices” Journal of Business 38: 34–105
  • Bruch, H. and F. Walter (2005) The keys to rethinking corporate philanthropy. MIT Sloan Management Review (Fall): 49-55.
  • Chavez, J. (2011). Doing more good. Strategic Finance 48-51. (Start with a corporate social responsibility assessment and then develop a CSR strategy).