Accounting is often referred to as the language of business across the world. In simple terms, a language is a system of communication that uses symbols, signs, or vocal sounds to convey thoughts and ideas. Similarly, accounting functions as a specialized language used to communicate the financial performance and status of a business to various interested stakeholders.
In this role, accounting conveys details about the operations and results of a business enterprise. Each business maintains its own set of accounting records. These records are primarily used to communicate financial data to individuals, groups, or institutions interested in the organization’s performance and condition. While accounting is typically associated with businesses, it is not limited to commercial enterprises alone. Various legal entities, including individuals and governments, use accounting to gain insights into financial conditions and activities. Just as businesses like firms, companies, and institutions maintain financial records, nations and individual proprietors also rely on accounting for decision-making and evaluation.
To effectively interpret accounting information for communication, reporting, analysis, and decision-making purposes, one must understand accounting grammar, which includes the structure of accounts, conventions, concepts, principles, standards, and other foundational elements.
The Need and Importance of Accounting
The main objective of any business, whether large or small, is to earn a profit. A businessman earns income from sources such as sales and interest on bank deposits and incurs expenses on purchases, salaries, rent, electricity, insurance, and other operational costs. At the end of the financial year, a businessman wants to assess the financial performance and profitability of the business. Due to the large volume of transactions in modern business, it is impractical to rely on memory to track income and expenditure. By maintaining a written, systematic record of all financial activities, a businessman can easily access and evaluate important financial data.
Definition of Accounting
The American Institute of Certified Public Accountants (AICPA) defines accounting as the art of recording, classifying, and summarizing transactions and events, which are at least partially of a financial nature, in a significant manner and terms of money, and interpreting the results thereof. This definition emphasizes both the mechanical and analytical components of accounting.
Difference Between Accounting and Accountancy
Although commonly used interchangeably, there is a subtle distinction between the terms accounting and accountancy. Accountancy refers to the profession practiced by accountants and encompasses the broader field that includes theoretical concepts and principles. Accounting, on the other hand, is the practical process of systematically recording financial transactions and preparing reports for users.
Fundamental Aspects of Accounting
Record Keeping
The core function of accounting involves maintaining orderly records of all financial transactions. This requires adherence to established policies, practices, and procedures. Transactions are recorded as soon as they occur in designated books of account.
Tracking Financial Transactions
In a business setting, numerous transactions occur regularly. Each transaction must be carefully collected and analyzed, which demands specific accounting procedures for accurate tracking and evaluation.
Financial Reporting
Financial reporting is a formal process governed by frameworks such as the Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). These frameworks establish how financial transactions are to be aggregated and reported in the financial statements. The final output includes a statement of profit and loss, a balance sheet, and a statement of cash flows, often accompanied by supporting notes and disclosures.
Types of Accounting
Financial Accounting
Financial accounting involves the systematic process of generating financial reports for a business entity. It summarizes all transactions in standardized formats, such as the balance sheet, income statement, and cash flow statement. This branch focuses on historical financial data and provides insights into the business’s financial status.
Cost Accounting
Cost accounting is essential for evaluating and controlling costs related to production and operations. It enables businesses to determine the actual cost of products and services, helping in pricing decisions and cost optimization strategies.
Forensic Accounting
Forensic accounting involves the collection, recovery, and analysis of financial information for investigation purposes. It is frequently used in legal contexts to uncover financial irregularities, fraud, and misrepresentation. The scope of forensic accounting is expanding, with efforts to define frameworks and benchmarks for its practice.
Methods of Accounting
Cash System of Accounting
Under the cash system, transactions are recorded only when cash is received or paid. This method does not account for credit transactions and therefore fails to provide a comprehensive view of the financial condition. It is simple, but it does not reflect the true profitability of the business.
Accrual System of Accounting
In the accrual system, transactions are recorded when they occur, regardless of when cash is received or paid. This method offers a complete and accurate picture of the financial activities of a business over a specific period and is widely used in professional and corporate accounting.
The Process of Accounting
The accounting process is designed to achieve the main goal of providing financial information to users. It includes several interconnected functions:
Identifying
This step involves identifying business transactions from source documents such as invoices, receipts, and contracts.
Recording
Identified transactions are recorded systematically, often starting with a journal. The journal may be divided into subsidiary books depending on the size and nature of the business.
Classifying
Classification entails organizing and analyzing recorded data according to type and nature. This is usually done in a ledger, which groups similar transactions to facilitate easy analysis.
Summarizing
Summarization involves preparing financial statements, such as the profit and loss account, balance sheet, and cash flow statement. These documents present the classified financial data in a concise and understandable format.
Analyzing
Analyzing simplifies the financial data presented in reports to make it understandable for non-expert users. This step involves comparisons, ratios, and trend analysis to reveal insights.
Interpreting
Interpretation means explaining the significance of the analyzed data. It helps users understand the implications of financial results, guiding them in making informed decisions.
Communicating
Finally, accounting information is communicated to stakeholders through financial statements and reports. These users include business owners, managers, investors, creditors, regulators, and employees.
Accounting Concepts
Separate Business Entity Concept
This concept maintains a clear distinction between the business and its owner. All transactions are recorded from the business’s point of view, treating the owner as a separate entity with capital invested in the business.
Double Entry Concept
Every financial transaction has two aspects. For example, a sale results in both a reduction in stock and an increase in cash. The double-entry system ensures that each transaction is recorded with equal debit and credit entries. The fundamental equation is: Assets = Liabilities + Owner’s Equity.
Going Concern Concept
This concept assumes that a business will continue operating for the foreseeable future. Financial statements are prepared with the expectation that the business is not about to liquidate or curtail operations. This allows assets and liabilities to be recorded based on ongoing use rather than liquidation value.
Matching Concept
According to this concept, revenue and related expenses should be recorded in the same accounting period. This ensures that income is matched with the costs incurred to generate it. The concept is the basis for adjustments involving accrued incomes, prepaid expenses, and other end-of-period entries.
Objectives of Accounting
Maintaining Systematic Records
Accounting provides a structured method for recording financial transactions. Following standard principles ensures that data can be quickly accessed and interpreted when needed.
Determining Operational Results
By preparing income statements such as the trading and profit and loss account, accounting helps determine whether a business has made a profit or suffered a loss during a given period.
Assessing Financial Position
Accounting enables businesses to evaluate their financial position at any given time through balance sheets, which list assets and liabilities. This information is crucial for planning and strategic decision-making.
Providing Information to Stakeholders
Accounting delivers relevant financial information to internal and external stakeholders. Owners evaluate performance, banks assess creditworthiness, government authorities determine tax liabilities, and employees may use this information to negotiate wages or benefits.
Understanding the Accounting Cycle
The accounting cycle is a complete sequence of accounting processes that begins with the identification and recording of business transactions and ends with the preparation of final accounts. It is a structured process followed by every organization to ensure that all financial activities are properly documented, analyzed, and reported. The cycle involves multiple steps that build upon each other to result in the accurate presentation of financial data. It ensures the integrity and reliability of financial information, which is crucial for internal analysis, external audits, compliance, and decision-making.
Business Transactions and Their Role in Accounting
Every business enterprise engages in various economic activities that involve the exchange of goods or services. These exchanges, which are measurable in monetary terms, are known as business transactions. Business transactions are the foundation of accounting because each transaction triggers the accounting process. Only transactions that have a financial impact are recorded. For example, the purchase of raw materials, the sale of finished goods, rent payments, equipment purchases, and the payment of salaries are all business transactions. Non-monetary events, such as hiring an employee without any immediate payment or signing a non-binding agreement, are not recorded unless they involve a financial commitment.
Users of Accounting Information
Accounting provides financial information that serves both internal and external users. Internal users include business owners, managers, and employees. External users include investors, lenders, creditors, regulatory authorities, government agencies, and researchers. Each group uses accounting data for specific purposes. Owners and managers use the data to evaluate performance, allocate resources, and make strategic decisions. Employees and trade unions may use financial reports to understand the company’s profitability and potential for wage increases. Lenders and creditors use accounting data to assess the firm’s creditworthiness and ability to meet financial obligations. Regulatory authorities and government agencies review financial reports to ensure compliance with tax laws and other regulations. Prospective investors evaluate financial data to determine whether a business is a sound investment.
Owners as Users of Accounting Information
Owners are directly invested in the business and require accurate financial data to assess the performance and sustainability of the enterprise. They rely on accounting information to evaluate profitability, monitor investments, and decide whether to inject more capital or withdraw existing funds. For sole proprietors and partners, financial statements also reflect personal stakes and guide critical decisions like expansion, diversification, or restructuring.
Creditors and Lenders as Users
Creditors and lenders are concerned with the firm’s ability to repay debts. They examine financial statements to understand liquidity, solvency, and repayment capacity. Credit rating agencies may also use this data to assess financial stability. Lenders evaluate earnings before interest and tax, debt-equity ratios, and working capital to determine whether lending to a particular business is secure and justifiable.
Managers and Their Information Needs
Managers use accounting information to make daily, monthly, and annual operational decisions. They analyze trends in revenue and expenses, evaluate cost structures, and measure departmental efficiency. Managerial accounting provides data for budgeting, forecasting, resource allocation, and internal controls. Through such insights, managers can adjust business strategies to align with corporate goals.
Customers and Their Interest in Accounting Information
Customers, especially those with long-term contracts or significant financial exposure to a business, may review financial data to assess the firm’s viability. For example, government clients or corporate customers might want to ensure that the business can maintain product supply, service delivery, and warranty obligations. This builds trust and reinforces the business relationship.
Government and Regulatory Agencies
Government authorities use financial reports to determine tax liabilities, verify compliance with financial regulations, and evaluate public interest implications. Regulatory bodies ensure that businesses are not engaged in fraudulent practices, tax evasion, or misleading financial disclosures. Financial reporting also helps in compiling national economic indicators such as gross domestic product and inflation.
Investors and Their Decision-Making Process
Investors, both existing and potential, use accounting information to evaluate the financial health, growth prospects, and profitability of a business. The financial statements provide insight into return on investment, dividend policies, risk levels, and market performance. Investors may use ratios like earnings per share, price-to-earnings ratio, and book value to guide their investment decisions.
Employees and Trade Unions as Stakeholders
Employees and trade unions are interested in the financial strength of the business to assess job security, bonuses, and salary increases. In some jurisdictions, firms are required to disclose certain financial information to employee representatives, especially in collective bargaining situations. Understanding profitability and business expansion plans helps employees gauge their prospects.
The Three Main Branches of Accounting
Accounting is categorized into three major branches: financial accounting, cost accounting, and management accounting. Each serves distinct purposes and audiences.
Financial Accounting
Financial accounting focuses on the systematic recording and reporting of a business’s financial transactions. It produces financial statements that reflect the performance and position of the business over a specific period. Financial accounting is governed by regulatory standards and is primarily intended for external users such as investors, regulators, and creditors. It answers questions related to profitability, liquidity, solvency, and overall financial condition.
Cost Accounting
Cost accounting is used to capture and analyze the costs associated with the production of goods or services. It helps businesses understand the cost structure, determine the cost per unit, and identify areas where cost savings can be achieved. It is particularly useful in manufacturing environments where the control of production costs directly affects profitability. Cost accounting includes elements like standard costing, marginal costing, and variance analysis, and supports managerial decisions on pricing, budgeting, and efficiency.
Management Accounting
Management accounting focuses on internal decision-making. It provides customized financial reports that help managers plan, control, and evaluate operations. Unlike financial accounting, which adheres to strict standards, management accounting is flexible and tailored to the needs of individual departments or executives. It includes budgeting, performance evaluation, cost-benefit analysis, and strategic planning tools.
The Functions of Accounting
Accounting performs several essential functions that support the operation and management of a business.
Maintaining Systematic Records
The most fundamental function of accounting is to maintain systematic and chronological records of financial transactions. This organized record-keeping ensures that every financial activity is documented and can be reviewed or audited at any time. The recording process starts with source documents, which are used to make journal entries and ledgers, ultimately forming the basis for financial statements.
Communicating Financial Information
One of the key objectives of accounting is to communicate financial results and conditions to interested parties. This involves preparing statements that present profits, losses, assets, liabilities, and cash flows in a comprehensible and reliable format. These reports enable users to evaluate financial health, assess risks, and make informed decisions.
Meeting Legal Requirements
Businesses must comply with various laws and regulatory frameworks that require them to maintain proper accounting records and submit financial statements. Examples include compliance with tax laws, corporate laws, and financial disclosure regulations. Systematic accounting supports the timely filing of returns and other statutory documents, reducing the risk of penalties and legal disputes.
Assisting Managerial Decision-Making
Accounting provides critical information that supports strategic and operational decisions. For instance, it can reveal whether a product line is profitable, whether an investment should be made, or whether cost-cutting measures are necessary. Real-time accounting data enables prompt decisions and quick adjustments to changing market conditions.
Enabling Forecasting and Budgeting
Accurate accounting records provide the historical data needed for forecasting future trends and preparing budgets. Past performance data serves as a reference for estimating revenue, projecting expenses, and planning for capital requirements. This forecasting function is vital for long-term sustainability and business expansion.
Business Entity Concept
The business entity concept assumes that the business is distinct from its owner(s). In accounting, the business and its owner are treated as two separate entities. This means that all transactions are recorded from the business’s perspective, not the owner’s. Any capital introduced by the owner is treated as a liability of the business. For example, if the owner invests ₹5,00,000 into the business, it is recorded as capital and not income. Similarly, any withdrawal of cash or goods for personal use by the owner is termed as drawings and reduces the capital.
Going Concern Concept
The going concern concept assumes that a business will continue to operate indefinitely and will not be closed or sold shortly. This concept allows the business to defer the recognition of certain expenses and revenues to future periods. For example, a machine purchased by a business is not treated as an expense in the year of purchase but is depreciated over its useful life. The assumption is that the business will continue using the machine in the coming years to generate income.
Money Measurement Concept
According to the money measurement concept, only those transactions and events that can be measured in monetary terms are recorded in the books of accounts. Non-monetary events such as employee skills, brand reputation, and working conditions are not recorded even though they may significantly impact the business. This ensures uniformity and comparability, but also means some qualitative factors are excluded from the financial statements.
Accounting Period Concept
The accounting period concept divides the life of a business into specific time intervals, typically a year, to prepare financial statements. This helps in comparing financial performance across different periods and assists stakeholders in making informed decisions. In India, the financial year for accounting purposes is usually from 1st April to 31st March. The periodic matching of revenues and expenses provides insights into the profitability of the business.
Cost Concept
The cost concept states that assets should be recorded at their original purchase price and not at current market value. This historical cost remains on the books, even if the value of the asset changes over time. For example, if a building is purchased for ₹10,00,000 and its market value rises to ₹15,00,000, it will still be recorded at ₹10,00,000. This principle ensures objectivity and verifiability, but may result in outdated asset values.
Dual Aspect Concept
The dual aspect concept is the foundation of accounting. It states that every transaction has two aspects: a debit and a credit. For example, when a business purchases machinery for ₹50,000 in cash, it results in an increase in machinery (asset) and a decrease in cash (asset). This ensures the accounting equation remains balanced:
Assets = Liabilities + Capital
This concept is crucial for maintaining the accuracy and integrity of the financial records.
Matching Concept
The matching concept requires that revenues and the related expenses be recognized in the same accounting period. This ensures that the income statement reflects a true and fair view of the profitability of a business. For example, if sales are made in March but expenses related to those sales are paid in April, those expenses should be recorded in March to match the revenue. This concept supports the accrual basis of accounting.
Accrual Concept
The accrual concept states that transactions should be recorded when they occur, not when cash is received or paid. Revenues are recognized when earned, and expenses are recognized when incurred, regardless of the timing of the cash flow. For instance, if a company provides services in January but receives payment in February, the revenue is recorded in January. This provides a more accurate picture of the financial position of a business.
Realization Concept
The realization concept dictates that revenue should be recognized only when it is earned and not necessarily when cash is received. This means that sales are recorded when the goods are delivered or services are rendered, regardless of whether payment has been made. For example, if goods are sold on credit in March, revenue is recognized in March even though the payment may be received in April or later. This ensures that income is not overstated.
Verifiability and Objectivity Concept
This concept states that accounting information should be based on objective evidence that can be verified. Transactions should be supported by source documents such as invoices, receipts, contracts, and bank statements. This enhances the credibility and reliability of financial statements, reducing the risk of manipulation and misrepresentation.
Full Disclosure Concept
The full disclosure concept requires that all material information be disclosed in the financial statements or the notes to accounts. This includes information that may affect the decision-making of users, such as contingent liabilities, changes in accounting policies, and events after the balance sheet date. The goal is to present a complete and transparent picture of the financial position and performance of the business.
Consistency Concept
The consistency concept mandates that accounting policies and procedures should be applied consistently from one period to another. This allows for comparability of financial statements over time. If any change in accounting policy is made, it should be disclosed along with the reason and its impact on the financial statements. For example, if a business switches from the straight-line method to the declining balance method of depreciation, the effect of this change should be reported.
Conservatism or Prudence Concept
The conservatism concept advises that potential losses should be recognized as soon as they are anticipated, but gains should only be recognized when they are realized. This ensures that assets and income are not overstated, and liabilities and expenses are not understated. For instance, if there is a possibility of a customer defaulting on payment, a provision for doubtful debts should be made, even before the actual default occurs.
Double Entry System
The double-entry system is the fundamental concept that underlies present-day accounting and bookkeeping. It means that every transaction has a dual effect, affecting at least two accounts. For instance, when a company purchases goods on credit, the inventory account increases while the accounts payable account also increases. This system helps maintain the accounting equation, i.e., Assets = Liabilities + Equity. The double-entry system ensures that the books are always balanced. It provides an accurate record of all transactions and helps in detecting errors and fraud. Each entry requires a debit in one account and a corresponding credit in another. This duality helps trace the impact of each transaction and keeps the ledger consistent. The system is universally accepted and is used in preparing final accounts and financial statements.
Accounting Cycle
The accounting cycle is the process followed to identify, record, and summarize accounting information into financial statements. It begins with the identification of financial transactions and proceeds through recording, classifying, and summarizing to finally preparing financial reports. The cycle includes steps such as identifying transactions, recording in journals, posting to ledgers, preparing trial balances, making adjusting entries, preparing financial statements, and closing the books. The accounting cycle helps in ensuring that all financial transactions during a period are properly accounted for and reported. It also aids in maintaining consistency in financial reporting across periods. The cycle typically follows a fiscal or calendar year and is repeated for each accounting period. Proper execution of the accounting cycle ensures transparency and accuracy in the financial statements.
Accrual vs. Cash Basis of Accounting
There are two main bases of accounting: the accrual basis and the cash basis. Under the accrual basis, revenues and expenses are recognized when they are earned or incurred, regardless of when cash is received or paid. This method provides a more accurate picture of a company’s financial position and is required under most accounting frameworks like GAAP and IFRS. The cash basis, on the other hand, recognizes revenues and expenses only when cash is exchanged. While simpler and easier to implement, it may not provide a complete picture of a company’s financial health, particularly for companies with significant accounts receivable or payable. Small businesses and individuals often use the cash basis due to its simplicity, but larger entities typically use the accrual basis for compliance and accuracy. Choosing the appropriate method is crucial for financial planning and tax reporting.
Trial Balance
A trial balance is a statement that lists all the ledger account balances at a given time, usually at the end of an accounting period. It is used to verify that the total debits equal the total credits after all transactions have been recorded. A trial balance serves as a checkpoint before preparing financial statements. Any imbalance in the trial balance indicates that errors have occurred in the recording or posting of transactions. However, a balanced trial balance does not guarantee the absence of errors, as some mistakes, like omission or double posting in the same direction, may not affect the balance. The trial balance includes both real and nominal accounts and helps in detecting arithmetical inaccuracies. It is a foundational tool for accountants to ensure the accuracy of the books.
Adjusting Entries
Adjusting entries are made at the end of an accounting period to ensure that revenues and expenses are recognized in the period they occur. These entries are necessary under the accrual basis of accounting to match income and expenses properly. Types of adjusting entries include accrued revenues, accrued expenses, deferred revenues, deferred expenses, and depreciation. Adjusting entries update the records before financial statements are prepared. They are journalized and then posted to the general ledger. Without adjusting entries, the financial statements may not reflect the true financial position and performance of the business. Properly adjusting the accounts ensures compliance with the matching and revenue recognition principles. These entries are critical for accurate financial reporting and decision-making.
Closing Entries
Closing entries are journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent accounts. Temporary accounts include revenue, expense, and dividend accounts, which are closed to retained earnings or capital accounts. The purpose is to reset the balances of temporary accounts to zero for the next accounting period. This process ensures that only the revenues and expenses of the current period are reported in the financial statements. Closing entries are recorded after the financial statements are prepared. This step marks the completion of the accounting cycle. After posting closing entries, a post-closing trial balance is prepared to ensure that all temporary accounts have been closed properly. This step is essential for starting a new accounting period with a clean slate.
Financial Statements
Financial statements are formal records of the financial activities and position of a business. They are prepared at the end of an accounting period and include the income statement, balance sheet, statement of changes in equity, and cash flow statement. The income statement shows the company’s revenues and expenses, resulting in net profit or loss. The balance sheet presents the company’s assets, liabilities, and equity at a specific point in time. The statement of changes in equity explains the movements in equity accounts, while the cash flow statement reports the inflow and outflow of cash in operating, investing, and financing activities. Together, these statements provide stakeholders with a comprehensive view of a company’s financial health. They are essential tools for investors, creditors, and management in decision-making. The accuracy and reliability of financial statements are ensured through adherence to accounting principles and auditing.
Accounting Standards
Accounting standards are authoritative guidelines that govern the accounting procedures and financial reporting of companies. They ensure consistency, transparency, and comparability of financial statements across different entities and periods. In India, accounting standards are issued by the Institute of Chartered Accountants of India (ICAI), while globally, standards are governed by bodies like the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) in the United States. Adherence to these standards is mandatory for most companies, especially those that are publicly listed. They cover a wide range of topics such as revenue recognition, asset valuation, lease accounting, and financial instruments. Compliance with accounting standards is critical for gaining the trust of investors and regulatory authorities. They also facilitate global investment and comparability among firms across countries.
Errors and Frauds in Accounting
Errors in accounting are unintentional mistakes in recording, classifying, or summarizing financial transactions. Common types of errors include errors of omission, commission, principle, and compensating errors. These can occur due to oversight, misunderstanding of principles, or arithmetic mistakes. Frauds, on the other hand, are deliberate misstatements or omissions intended to deceive users of financial information. Fraudulent activities may involve manipulation of figures, misappropriation of assets, or falsification of records. While errors can be detected through reconciliation and auditing, fraud detection often requires deeper investigation. Maintaining internal controls, segregation of duties, and regular audits are key measures to prevent and detect both errors and fraud. Transparency and accountability are vital in maintaining the integrity of financial information.
Internal Control and Audit
Internal control refers to the processes implemented by a company to ensure the integrity of financial reporting, compliance with laws and regulations, and effective operations. These controls include preventive, detective, and corrective mechanisms. Auditing is the examination of financial statements and related processes to ensure their accuracy and compliance with standards. Audits can be internal, conducted by in-house staff, or external, performed by independent auditors. Internal control systems help prevent fraud and errors, safeguard assets, and ensure reliable financial reporting. An effective internal control system includes proper documentation, authorization procedures, physical controls, and regular reviews. Auditing assures stakeholders that the financial statements are free from material misstatements and that internal controls are functioning effectively.
Ethics in Accounting
Ethics in accounting is the application of moral principles to the practice of accounting. Accountants must uphold integrity, objectivity, confidentiality, and professional behavior in all their dealings. Ethical accounting ensures public trust and maintains the credibility of financial information. Unethical behavior, such as manipulation of records, insider trading, or misrepresentation, can lead to serious legal and reputational consequences. Professional bodies have established codes of ethics that members must adhere to. These codes guide accountants in making the right decisions, especially when faced with ethical dilemmas. Maintaining ethics in accounting is crucial not only for individual professionals but also for the reputation and sustainability of the entire financial system. Education, awareness, and a strong ethical culture are essential to promote ethical behavior in accounting.
Conclusion
Accounting plays a vital role in the financial ecosystem, providing the necessary information for decision-making, compliance, and strategic planning. Its fundamental concepts, from the double-entry system to financial statements and ethics, form the backbone of financial reporting. Understanding these principles helps ensure accuracy, transparency, and trust in financial information. As businesses grow and regulations evolve, the principles of accounting remain critical to maintaining order and consistency in financial reporting. Whether one is a student, a professional, or a business owner, mastering the basics of accounting is essential for financial success and compliance. A strong foundation in accounting not only aids in managing one’s finances effectively but also contributes to the broader economic stability and transparency.