Is accounting profit figure a measure of true profit of an organizations

Is history profit figure a bill of true profit of an organizationsAccounting rules and regulations atomic number 18 a mish-mash of rather unconnected concepts(e.g. relevance and neutrality), giving managers discretion in deciding which principle to and non to apply(1). Profit is no simple figure which fag be computed easily(2), infact it is a thorough process of naming and counting(3) identifying, calculating and summarizing many references generated. Some of these items donot exist, and wherefore are brought into existence by identifying and assigning monetary values, some collect quantifying the qualitative, while calculation of others may involve managers choosing between unlike rules and methodologies(revenue recognisation, inventory, dispraise calculation using different techniques), all of which are accepted, by providing a simple reasoning or justification for the choice. Hence, earning management itself is allowed in the concern giving managers the discretion to twi st and turn certain figures to meet their criteria, provided a proper reasoning is disposed(p).Prudence-an important rule in history, guiding managers that should a conflict arise, a conservative approach to be adopted, as not to be over-optimistic about effect. But now, it is a mere subset of reliability, replaced by plica representation by IASB, following FASB(4). Should we now expect more ingestion up of creative score? Given the current credit crunch is it evenhandedly to follow USA? Does this mean that instead of using a studious approach as to which colors to use, managers are free to paint the externalise in any way they like? Similar implications apply for the use of fair value story (driven by Hicks,1975, income and opportunity cost supposition), impact asset valuation and income recognisation. Also given diverse and conflicting rules, what mayhap true for one company or country, maynot be true for another(due to different accounting bodies). Therefore profit is merely creating rather than reflecting reality(5).Another occlusion to discuss is PAT(positive accounting possibility) based on unrealistic assumptions as coherent as they are a good prediction, and underlying scheme are never rejected if proven wrong(6). The diagram below shows that in every step of PAT methodology there is a lot of subjectivity, and half(a) of the time they donot tell what assumptions have been made.PAT is based on offer Smiths rational economic man stating that all choices are based on self interest and accumulation of private wealth hence accounting methods will be chosen to mislead and disguise performance(7). Agency theory (Jensen Meckling, 1976) is closely related to this, displaying conflict of interest amongst shareholders and managers, which justifies why managers may go back to earning management, especially if performance-based salaries are used (management compensation hypothesis, Watt and Zimmerman 1986).Shareholders appoint auditors as a prote ction of their rights and assurance that managers are managing the company to the best of their ability, to keep abreast decision making efficiency, but auditors donot have access to all the information, and however if when base their decisions on the information provided by managers and given accounting regulations, does this information asymmetry means that auditors really provide a fair and dependable analysis of company reporting? Given the limited figures that auditors are given, can they analyze that positiveness as shown by the company is actually enlighten? The answer is NO, and we have many examples such as Enron, Sunbeam, which despite been given unqualified audit reports, failed ultimately.Furthermore, as Watt and Zimmerman argue that PAT only gives a prediction of which method managers major power use, but doesnot tell which accounting method should be used, for example a large company is in all likelihood to use income reducing methods to avoid political attent ion (political cost hypothesis), debt hypothesis states that a company which is close to breaking its debt covenants will choose policies to come across such covenants are not violated(8).Also, it is too simplistic to state that it is the only truth. Infact even if profit figure is aligned with companys actual performance, according to ropiness theory it is just a truth(9), and not the ultimate reality. Although some might claim the contrary, as the media only compares the profit figures and doesnot refer to the variety of accounting policies that can be adopted(10).My argument ends with the viewpoint, that although accounting policies and audit reports are knowing to protect stakeholders from false reporting, but due to gaps in rules, managers still obtain the discretion to choose policies, which is exploited to meet their objectives, hence shareholders and auditors should use a pool of resources, such as return on investment(11), key performance indicators, share price and eco nomic profit (bank interest and return on other assets-12) to assess performance. Information is not stable, clear and self-evident(13), it is subject to never-ending change, and can be generated and interpreted in different ways. Truth is not in the numbers, it is only constructing reality using space, time and value machine(13), and then users of accounting information should use their own judgment, knowledge and opinions before gain any conclusion and not base decisions blindly on profitability alone.NOTESRhoda lecture notes The Growth of regulation International standards and conceptual frameworks of accounting.My first pensive pieceLecture notes Ann-Christine Frandsen Where do we find accountingLecture notes Dr Fiona Anderson Gough premature standards and normative theory, the influence of past on presentHines 1988Friedman, The methodology of confirmatory Economics 1953Adam Smith, The wealth of nations, 1776Lecture notes, Rhoda, Positive accounting theory (PAT)Lecture not es, Dr Fiona Anderson Gough, Portraying successDeegan and Unerman, 2006Lecture notes, Ann Christine FrandsenBall and Brown, 1968Frandsen A-C (2009), Information governing