ACCOUNTING IS AN ART OR SCIENCE

Submitted by
Pranav sai tirunagiri
Division : C PRN:17010324066

of Symbiosis Law School, HYDERABAD,

Symbiosis International University, PUNE

In
Febraury, 2018

Under the guidance of

Mr. Srinivas Methuku

Designation and official address of research guide

Asst. Professor
 CERTIFICATE

I hereby declare that the project entitled “Accounting : Art or Science” submitted to the
Symbiosis Law School, HYDERABAD for Business Accounting is part of internal
assessment and is my original work. It has been carried under the guidance of Srinivas
Methuku Sir from ___________ to ____________. The research work has not been
submitted elsewhere for award of any degree.

The material borrowed from other sources and incorporated in the thesis has been duly
acknowledged that I myself could be held responsible and accountable for plagiarism, if any,
detected later on.

Name of the candidate: _______________________

Signature of the candidate: ____________________

Date: _____________________________________
 CONTENTS

S.No Particulars Page No.

1. Introduction 1-2
2. Literature Review 2-3
3. Research Methodology 3
4. Objectives of the Study 4
5. Results and Discussion 5-7
6. Conclusion 8
 INTRODUCTION

What is ACCOUNTING?

Accounting is a systematic process of identifying, recording, mesearing, classifying,

verifying, summarizing, interpreting and communicating financial information. It reveals
profit or loss for a given period, and the value and nature of a firm’s assets, liabilities and
owners’ equity.

Accounting provides information on:

● The resources available to a firm,

● The means employed to finance those resources, and
● The results achieved through their use
The American Institute of Certified Public Accountants (AICPA) defines accounting as: "the
art of recording, classifying, and summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least of financial character, and interpreting the
results thereof".

According to R.N Anthony,

“Nearly every business enterprise has an accounting system. It is a means of collecting,

summarizing, analyzing, and reporting in monetary terms, information’s about business”.

In whatever way the term accounting is defined its universally accepted objective is to record
all the transactions in monetary units and to report them to its users in useful manner in the
form of financial statements. These financial statements provide accounting information
which is used by various interested parties for decision making.

We are researching on the topic of accounting as an art and accounting as a science in order
to understand the subject of accounting in detail. The knowledge in this respect will enable us
to perform the functions of accounting in a better and more efficient manner as a result of the
clarity gained.
What is SCIENCE ?

Science may be defined as a systematized body of knowledge based on certain principles

which have universal application. It establishes the relationship of cause and effect about any
occurrence or happening. Scientific knowledge is based on observation, experiments and
testing of facts.

What is ART ?

The term “Art” means a diverse range of human activities and study of these activities but
most often misused or misunderstood to refer to painting, film, photography, sculpture, and
other visual media. Art is using the skills or techniques of any field.

LITERATURE REVIEW
In order to understand the topic better a review of various writings, reports, and academic
journals was undertaken. A few of them are being listed below:

Systems Research and Behavioral Science by G.A Swanson

Swanson claims that accounting information can be used for scientific investigation.
In his book he says; “Accounting is an evident and well developed activity of higher level
living systems. As practiced by Certified Public Accountants (CPAs) and others, it cannot be
displayed as an applied science. Nevertheless, important aspects of accounting information
systems exhibit characteristics consistent with those of applied sciences. Taken together,
these aspects form a system within a system, a cohesive core of related procedures and ideas
that constitutes the skeleton of accounting systems. Recognizing and studying these core
aspects may lead to the development of an applied science that deals with questions of
fundamental concern to several sciences such as economic, sociology, ecology etc.

Creative accounting in Turillo and Teller’s opinion (1997) represents “an

instrument of improving annual accounts, a prop and result of financial and fiscal
engineering”, while Trotman (1993) argues that this concept “allows the display of a new
favourable image of the results and the statement of account”.

In the book ‘Accounting Policies and Options’, professors Feleaga and Malciu
considered that the field of accounting involves “professional accountants use their
knowledge to manipulate the figures included in the annual accounts“. This indicates a
dominant feature of art, i.e. conceptual application of knowledge subject to personal
interpretation, hence suggesting that accounts is an art.

Taylor and Shearing defined accounting as the “Art and Science of recording
business transactions in a methodological manner so as to show: (a) the true state of affairs of
a business of a particular period of time and, (b) the surplus or deficiency which has accrued
during a specific period.”

S.N Maheshwari in her book ‘Advanced Accountancy’ said, ”Organized

knowledge based on certain basic principles is a ‘Science’. Accounting is also a science. It is
an organized knowledge based on scientific principles which have been developed as a result
of study and experience. Of course, accounting cannot be termed as a perfect science, like
physics or chemistry, where experiments can be carried and perfect conclusions can be
drawn. However, art is the technique which helps us in achieving our desired objective. In
this case accounting is definitely an art. Accounting helps in achieving our desired objective,
i.e. to know the profitability and the financial position of the business, by maintaining proper
accounts.”

RESEARCH METHODOLOGY
The research methodology adopted for this research paper is aimed at arriving at a conclusion
which is substantiated with scientific evidence. In order to ensure authentic subject matter,
authorized sources were referred to in order to collect data with the aim of learning the basic
lexicon of the research topic. Once the base knowledge was acquired, research papers relating
to the the topic were referred to in order to get an insight, a different perspective. The
collected data was put together and analyzed to arrive at the presented conclusion.

There have also been certain limitations to the study. There was no scope for a survey due to
the location constraint and hence different people’s opinions could not be taken into account.
The study is not based on primary data.
 OBJECTIVES OF THE STUDY

● To obtain an answer to the intriguing question of whether accounting can be said to be

an ART or SCIENCE
● To know the common characteristic features of art and science with respect to
accounting and its processes.
● To be able to understand and draw a comparison between the science and art aspects
of accounting.
● To examine the various ways in which the art of accounting enables the manipulation
and false representation of financial information.

RESULTS AND DISCUSSION

ACCOUNTING AS A SCIENCE
➢ Accounting is the science of recording and presenting the financial data of an
economic entity by observing, detecting, investigating, and identifying the economic
events via established collecting, testing, analyzing and presenting methods.
➢ Accounting; like science follows a systematic and organized path to understanding the
economic status of the entity.
➢ Science is obtaining knowledge by a systematic pattern including observation, study,
practice, experiments and investigation. It is organized knowledge based on certain
basic principles.
➢ Like Science; Accounting requires gaining knowledge about the economic status of
an entity by systematic study and it is an organized knowledge based on scientific
principles which have been developed as a result of study and experience.
➢ For a scientist; to reach an acceptable conclusive result on a particular matter or topic
requires identifying recording, measuring, researching it.
➢ By scientific it does not mean that it follows the same procedure used in medical
sciences, but that it follows a solid, concrete and effective series of steps that can be
repeated by different people and still have the same results.
➢ When it comes to quantities, amounts, and working with numbers in general it is
imperative to have a system that proves to be exact and can be repeated with the same
results. In that sense, accounting is a science.
➢ An accountant finalizes the economic results by identifying, analyzing, classifying
using the method of double-entry book keeping accounting system.
 ➢ Accounting cannot be termed as a ‘perfect science’, like Physics and Chemistry where
experiments can be carried and perfect conclusions can be drawn.
➢ It is a social science depending a lot on human behavior and other social and
economic factors. Thus perfect conclusions cannot be drawn and this leads many to
mistakenly think that accounting is not a science.
➢ So, Accounting is a science that comprises of rules, principles, concepts, conventions
and standards.
➢ The basic rule that debits must always equal credit - scientific formula. It is
understand that the balance sheet must always balance – a scientific conclusion.
“Numbers” seem to overwhelm the accounting product and “numbers” are created
within the science arena. Declining balance depreciation is computed very
scientifically. The income tax computations are based on the scientific applications of
adding, subtracting, multiplying and dividing.

➢ Should we use straight line or accelerated depreciation on an asset? What is the time
period over which we should depreciate an asset or amortize an intangible? How
should we compute our allowance for doubtful accounts? Should we record our
contingent liabilities, and if so, for what amount? Is the “estimated” cost to complete a
construction project set into a scientific and consistent formula? What percentage is
that construction projected complete? What tax rate should we use for deferred
income taxes? All these questions can be answered with a mind guided by the science
of accounting as well as the art of accounting

ACCOUNTING AS AN ART

➢ The term “Art” means a diverse range of human activities and study of these
activities, but most often misused or misunderstood to refer to painting, film,
photography, sculpture, and other visual media only. Art is using the skills or
techniques of any field.
➢ We can say that art is the study of the implementation of techniques and methods.
Accounting is an art because it presents the financial findings by following and
implementing a universally accepted method (GAAP – Generally Accepted
Accounting Principles)
 ➢ Art is the study of implying scientific method to practical use. And Accounting is an
art as the established rules and principles of accounting are applied in the book
keeping process of an economic entity.
➢ Accounting as an art, is that part of knowledge which enables us to reach our goals
and shows the way to attain the given objectives in the best possible manner.
➢ Since accounting has to deal with different kinds of organizations and varied
situations, it has not yet been possible to develop rigid rules applicable in all cases. To
this extent, it is still an art.
➢ Accounting does tell us the manner in which special objectives can be achieved.
Accounting is an ‘art’ of recording, classifying and summarizing in terms of money
events and financial character interpreting the result thereof.
➢ The word ‘art’ is appropriate for the process of accounting because every accountant
has different methods and skills to perform the accounting functions and to view the
accounting system and thus accounting is influenced by the personal judgment of the
accountant. So accounting is still an art.

ACCOUNTING SCANDALS – AN ART

Accounting is about numbers and being transparent, so that those who need to know anything
about a company have all the necessary information. But of late we have seen that
sometimes accounting can be ‘too’ creative. This is a nice way of saying that there has been a
lot of manipulation and presentation of false information. For example, the Enron scandal and
the eventual collapse of the company. We have also seen "creative" accounting practices with
Greece, which have been causing problems for the economy. These cases have been perfect
examples of the negative impacts of creative accounting.

Creative accounting consists of accounting practices that follow required laws and
regulations, but deviate from what those standards intend to accomplish. Creative accounting
capitalizes on loopholes in the accounting standards to falsely portray a better image of the
company. Although creative accounting practices are legal, the loopholes they exploit are
often reformed to prevent such behaviours. And as we can see, this field of creative
accounting covers a major part of accounting as an art.
Creativity has a bad name within the accounting industry for obvious reasons."Creative
accounting" brings to mind the various huge scandals of yesteryear that took down mighty
firms. But perhaps this abhorrence of creativity has been taken a bit too far in business
planning. In accounting, we need to conform with the regulations and adhere to generally
accepted accounting procedures.

Apart from this, creative accounting can also be used in healthy expansion of accounting
data to attract clientele and contribute to the growth of the business or firm.
 CONCLUSION
● Views and thoughts about whether accounting is an art or science differ from
accountant to accountant.
● Processes and methods used in accounting can be underlined as scientific, and the
decisions and estimation making can be classified as an art.
● Thus from the above discussion we can understand that rules and principles of
accounting are the science part of the accounting process and choosing the way to use
them are considered as the art.
● Accounting can be considered an art because it requires creative judgment and skills.
In order to perform accounting functions well, discipline and training is required.
● Accounting can also be considered a science because it is a body of knowledge, but
since the rules and principles are constantly changing and improving, it is not
considered an exact science.
 REFERENCES
Articles:
● Steve Rosvold. ‘The art and science of accounting’. Article in business financial
accounting consultations .May 14th, 2015.

● Justin keupper. ’Spotting creative accounting on the balance sheet’. Article in

investopedia.

Websites:
● http://www.businessdictionary.com/
● http://computeraccounting-notes.blogspot.com/
● https://iedunote.com
● https://scacpa.wordpress.com/
● https://www.enotes.com/
● http://www.cpamarketingtips.com/
● http://onlinelibrary.wiley.com/

Books:
S N Maheswari-Advanced Accountancy: Volume I
G A Swanson-Systems Research and Behavioral Science