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Part B
Managerial Aspects
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Chapter 5
Towards Understanding How the HR Function Relates to the Accounting Function
Simon Horsman
LEARNING OBJECTIVES
At the end of this chapter, learners should be able to:
Identify and describe the main functions that fall within the activities labelled āaccountingā and āfinanceā and relate these functions to one another.
Locate these functions within the structures typical of small and large organisations and relate these functions:
For each of the main class of decision made by human resource practitioners identify the information required and the ways in which this information is, in part, generated by the accounting and finance function.
Keywords: Accounting; finance; human resource management; accounting functions; HR functions; information, DIKW hierarchy
Introduction
Imagine you are a junior professional in a large UK organisation. You ask your boss if you can go to the annual conference of a leading human resource (HR) association. The boss is happy for you to go. What do they do? They check that the costs lie within the budget and, if so, authorise you to go, probably both orally and formally by giving you a cost code for you to put on the form that will be used to book your travel and authorise your absence. If the costs do not lie within the budget, the boss has a number of choices, they may:
say āSorry, you canāt goā;
look for some budget category with unspent funds, for example, there may be a pot labelled ācontingencyā or āat the managerās discretionā; or
ask to get the budget increased.
This is a typical interaction between HR and accounting.
Have you been in or can you imagine that situation?
How did (or do) you feel about it?
What does it tell you about the relationship between HR and accounting?
Identifying and Describing the Main Function of Accounting and Finance
It is important that readers appreciate that what follows mixes abstract principles with generalisations from large organisations in the United Kingdom of 2020. Care is needed if these ideas are applied elsewhere. For example, smaller firms may not employ an accountant, relying on bought-in services for bookkeeping, payroll and the public aspects of accounting. Small firm bosses normally do their own budgeting and management accounting. Of course, the HR and other functions may be similarly a mix of internal and bought-in services. Other cultures, jurisdictions and times have different labels for things, ācut the cakeā in different places, and may do things differently even if accounting processes are relatively universal.
The activities labelled āaccountingā and āfinanceā may be distinct analytically and as subjects of study within universities but in the world of affairs they are so closely intertwined that it is more helpful to think of āaccounting and financeā as a network of related functions, a system or a gestalt not unlike the famed double helix. A gestalt is best thought of as a whole with the system characteristic that the removal of any one part changes its nature to the point where the new entity is so different that it has to be treated as a different entity from the original whole.
Finance is the action component, but it is unreliable unless guided by the information component, accounting. But of course, actions are transactions to be recorded manually in ledgers by accountants and bookkeepers unless that has already been done electronically. These transactions join and enrich the spiral from information to action to more information and more action and so on, without limit.
Accounting Functions, Organisational Structure and Some Implications
All functions control the information within their area ā think sales statistics, personnel records or research data. Distinctive power falls to the accounting and finance function because of the special nature of financial information which arises as follows:
The accounting and finance function provides and controls much of the key language used by other functions.
Cash/money/funds are the most flexible resource able to be translated into pretty well every other resource. The accounting and finance function is the gatekeeper for capital and non-routine sources of funds as well as for auditors and tax inspectors.
The accounting and finance function can see everybody else, but the converse is not the case.
The accounting and finance function is concerned with minutiae (e.g. the profit on that item or the cost of that new desk) but it also has a view of the organisation as a total entity (e.g. on the basis of present trends can we survive the next five years?).
All functions possess great powers (e.g. to produce manufactures, to deliver services or to interact with customers) and their errors can produce disasters, but these departments are limited in a way that accounting and finance is not. This arises in part as the accounting and finance function acts as backstop to almost all non-routine decisions. For example, the disastrous 2007 decision of the UK bank RBS to take over ABN/Amro was the culmination of an expansion drive generated by RBS strategists and consultants; but it would have been signed off by the accounting and finance function, especially in terms of paying whatever was needed. Fred Goodwin, CEO, 2001ā2008, was a Chartered Accountant. One wonders how much he was challenged and the extent to which āgroupthink1ā dominated.
This resource/information nexus being both protean and abstract is hard to analyse but the accounting and finance function cannot be understood without considering its power and the implications of that power in terms of its self-protective tactics and organisational politics.
It is difficult to know where to start when trying to analyse ācontrolā and āinformationā. In terms of language, ācontrolā and āinformationā are nouns, so one is inclined to think of them as things, entities, even though that turns out not to be very productive. If you think of ācontrolā and āinformationā as processes, more as verbs, you find yourself following more creative, if complex paths, not least because control and information are systemically related.
Control is one use for information: typically it begins with collating information but it may well include producing information or commissioning the production of information. And this is not a simple matter because of what we might call āmeta-informationā by which I mean information about what kind of control is wanted which leads to selecting control criteria and action thresholds. This extends to what information is to be collected, how frequently, at what level of detail/granularity, how all the data items are going to be defined and how those data items will be structured to develop information on the way to knowledge and wisdom ā see what is known as the DIKW hierarchy.2...
