THE ROLE OF ACCOUNTING IN AN ORGANISATION Blog 1 | P1: Examining the Purpose of the Accounting Function A Case Study Reference: Hemas Holdings PLC, Sri Lanka
Introduction: What Is Accounting and Why Does It Matter?
In the dynamic and rapidly changing
environment that characterises modern-day business operations, accounting
emerges as one of the most critical areas in any firm. Rather than viewing it
as an ancillary process, accounting can be thought of as the systematic
structure through which businesses get an insight into their financial
situation and chart a way forward for themselves. According to the American
Accounting Association (AAA), "accounting refers to the process of
identifying, measuring, and communicating economic information to enable users
to make informed judgements and decisions" (American Accounting
Association, 1966; Accountingverse, 2024).
The example of Hemas Holdings PLC, which is among the most
diverse conglomerates in Sri Lanka, shows how an effective accounting process
can form the foundation for success through strategy development. Engaged in
such areas as Consumer Brands, Healthcare, and Mobility, Hemas achieved a
consolidated group turnover of Rs. 121.6 billion during the financial year
ended 31st March 2024, registering a growth of 6.7% from the Rs. 113.9 billion
of the prior year (Hemas Holdings PLC, 2024a). This remarkable progress could
have been achieved, to a large extent, due to the reliability of accounting
processes at Hemas Holdings. The current blog explores the objectives of
accounting in organisations and its scope of operations.
1. The Core Purpose of Accounting: Recording, Classifying, and
Communicating Financial Information
At a basic level, the aim of accounting is to
provide relevant and reliable financial information for decision-making
purposes by stakeholders (Aurora Training Advantage, 2024). In order to do so,
the main roles carried out by accounting are those of recording, classifying,
summarizing financial information into reports, and communicating to the users
(Atrill & McLaney, 2018).
These roles start for Hemas Holdings PLC at
the transactional level since any transactions related to sales of a
"Clogard" toothpaste or agreements with regards to distribution of
medicines or logistics contracts carried out by the Mobility division of Hemas
Holdings must be recorded in the company's accounting system in a reliable way.
It is from these records where Hemas Holdings will prepare their financial
statements like income statement, statement of financial position, and cash
flow statement among others (Hemas Holdings PLC, 2024a). As per the
requirements stipulated by the CA Sri Lanka and in accordance with IFRS, Hemas
Holdings PLC as a business enterprise should prepare financial statements
providing a true and fair view.
More than just fulfilling regulatory requirements,
maintaining proper records ensures that Hemas can track the performance of the
company's different business segments. According to Excel Accountancy (2024),
accountancy permits the company to "monitor the financial condition,
performance, and outcomes of the organisation," helping the company
determine how well it meets budget expectations and where there are deviations
that need to be examined. For Hemas, which is an industrial conglomerate operating
in Sri Lanka and abroad (e.g., Bangladesh), the capability to look into
segment-specific financial details is no longer just an option but rather a
requirement.
2. Financial Reporting: Communicating Value to Internal and External
Stakeholders
Financial reporting is one of the most
important reasons behind accounting. It involves making financial reports
available to both internal and external users. Financial accounting is one of
the branches within accounting, which is meant for external users like
investors, lenders, the government, and others (BMC.net, 2024). Management
accounting, however, supplies information internally to decision makers such as
the management and the board of directors (Drury, 2015).
The case of Hemas Holdings PLC presents a
very mature strategy that satisfies both sets of users. In particular, the
annual report of the organization for the year 2023/24, which was compiled in
compliance with the GRI standards and the sustainability requirements of the
IFRS S1 and S2, shows its commitment to full transparency of financial
disclosures (Hemas Holdings PLC, 2024a). The annual report includes the
accounts of 40 legal entities that belong to the group, offering a consolidated
view of its financial results to stockholders of CSE. During the year 2023/24,
the firm achieved an increase of 43.1% in net earnings, amounting to Rs. 6.1
billion from Rs. 4.3 billion in the previous year (Hemas Holdings PLC, 2024a).
Within the firm itself, management accounting
within Hemas aids budgeting, forecasting, and performance evaluation among its
divisions. The Consumer Brands division, which includes baby care, personal
care, home care, and oral care goods, needs precise cost accounting and margin
analysis in order to be competitive within an environment that has seen
consumers' buying power reduced due to economic difficulties (Hemas Holdings
PLC, 2024a). This is where accounting information plays a critical role in management
decision making.
3. Accounting as a Tool for Strategic Resource Allocation
Beyond financial reporting, one of the most
powerful roles of the accounting function is to inform strategic resource
allocation. Organisations operate in environments of finite resources and
unlimited competing demands. The accounting function provides the analytical
tools — cost-benefit analysis, variance analysis, break-even analysis, and
capital budgeting — that enable management to make rational, evidence-based
allocation decisions (Weetman, 2019).
Hemas Holdings PLC illustrates this principle
vividly through its investment decisions. In 2024/25, the company invested Rs.
1.0 billion in commissioning a state-of-the-art Catheterisation Laboratory
(CATH Lab) at Hemas Hospitals Wattala, described as equipped with Sri Lanka's
most advanced cardiovascular diagnostic and interventional technology (Hemas
Holdings PLC, 2025a). Such a substantial capital expenditure decision would
have been preceded by rigorous financial analysis, including projected return
on investment (ROI) calculations, discounted cash flow modelling, and
assessment of the investment's impact on the hospital's broader financial
position. The accounting function, therefore, does not merely record what has
happened — it provides the quantitative basis for deciding what will happen
next.
Similarly, the accounting function enabled
Hemas to identify the Mobility sector's growth potential. The sector reported
cumulative revenue of Rs. 1.5 billion for the first three quarters of FY
2024/25, a growth of 17.1%, with operating profits growing by 42.6% (Hemas
Holdings PLC, 2025b). These accounting-derived metrics confirmed the Mobility
segment as a high-performing area worthy of continued investment, reinforcing
the value of financial intelligence in strategic planning.
4. The Scope of Accounting in Complex Operating Environments
The scope of the accounting function extends
well beyond simple bookkeeping. In complex operating environments —
particularly those involving multinational operations, multiple business
segments, and diverse stakeholder groups — accounting must address a broad
spectrum of functions including financial accounting, management accounting,
tax accounting, cost accounting, and forensic accounting (Seal et al., 2018).
Hemas Holdings PLC operates in precisely such
an environment. With subsidiaries in Sri Lanka, Bangladesh, West Bengal, and
Myanmar, the group must navigate multiple tax jurisdictions, currency exchange
considerations, and varying regulatory frameworks (Hemas Holdings PLC, 2024a).
The accounting function must consolidate financial information from these
diverse entities into a unified group picture, applying consistent accounting
policies and making appropriate intercompany eliminations. This is a highly technical
process, demanding expertise in Sri Lanka Financial Reporting Standards
(SLFRS), which are converged with IFRS and mandated by the Accounting and
Auditing Standards Act No. 15 of 1995 (SLAASMB, 2024).
The three-year compound annual growth rate
(CAGR) of revenue for Hemas Holdings was 23.5% up to FY 2023/24 (LankaBIZZ,
2024), reflecting the dynamic growth environment in which the group operates.
Sustaining such growth demands that the accounting function be agile, accurate,
and forward-looking — delivering timely financial intelligence that keeps
management one step ahead of market changes. As Atrill and McLaney (2018)
argue, in complex operating environments, accounting information must be not
only accurate but also relevant, timely, and understandable to the wide range
of users who rely on it.
5. Accounting and Organisational Control
Another critical purpose of accounting is to
serve as a mechanism for organisational control. Financial controls, such as
budgets, standard costing systems, and variance analysis, allow organisations
to monitor performance against predetermined targets and to take corrective
action when deviations occur (Drury, 2015). Without these controls,
organisations would lack the disciplinary structure needed to ensure that
resources are used efficiently and that performance objectives are met.
At Hemas Holdings PLC, the accounting
function supports a comprehensive Enterprise Risk Management (ERM) framework
that integrates financial controls with broader risk management processes
(Hemas Holdings PLC, 2024b). The Group's Finance Division, alongside its
Corporate Affairs Division, conducts quarterly assessments of environmental,
social, and governance (ESG) performance, translating non-financial metrics
into financial implications that feed into the company's strategic planning
processes. This integration of accounting with risk management reflects the
evolving scope of the accounting function in modern organisations, where
financial and non-financial information are increasingly intertwined.
Moreover, Hemas's financial controls were
instrumental in navigating Sri Lanka's severe economic crisis of 2022-2023.
Despite extraordinary external pressures — including soaring inflation, foreign
exchange shortages, and supply chain disruptions — the group's accounting
systems enabled management to identify cost pressures in real-time, implement
corrective measures, and ultimately report operating profits of Rs. 11.0
billion for FY 2022/23 (Hemas Holdings PLC, 2023). This demonstrates that a
well-designed accounting function is not merely a compliance tool; it is a
genuine source of organisational resilience.
Conclusion
The accounting function is a cornerstone of
organisational effectiveness, serving purposes that range from basic
transaction recording to sophisticated strategic intelligence. For Hemas
Holdings PLC, a diversified group operating across multiple sectors and
geographies, accounting provides the financial language through which
performance is measured, resources are allocated, and accountability is
maintained. As the American Accounting Association (1966, cited in
Accountingverse, 2024) reminds us, the ultimate purpose of accounting is to
"permit informed judgements and decisions" — a purpose that Hemas's
consistent financial growth and stakeholder transparency confirm is being
fulfilled. In an era of increasing complexity, the accounting function is not a
back-office cost centre but a front-line strategic asset.
References
Atrill, P. and McLaney, E. (2018) Accounting and
Finance for Non-Specialists. 11th ed. Harlow: Pearson.
Aurora Training Advantage (2024) What Is The Primary
Purpose Of Accounting? [Online] Available at:
https://auroratrainingadvantage.com/accounting/faqs/purpose-of-accounting/
[Accessed: 10 May 2026].
BMC.net (2024) Importance of Financial Accounting: Key
Benefits and Functions. [Online] Available at:
https://www.bmc.net/blog/finance-and-accounting-articles/the-vital-role-of-financial-accounting
[Accessed: 10 May 2026].
Drury, C. (2015) Management and Cost Accounting. 9th
ed. Cengage Learning.
Excel Accountancy (2024) The Role of Accounting in an
Organisation. [Online] Available at:
https://excel-accountancy.com/financial-accounting/the-role-of-accounting/
[Accessed: 10 May 2026].
Hemas Holdings PLC (2023) Annual Report 2022/23.
Colombo: Hemas Holdings PLC.
Hemas Holdings PLC (2024a) Annual Report 2023/24.
Colombo: Hemas Holdings PLC.
Hemas Holdings PLC (2024b) Interim Report 2024/25 Q3.
Colombo: Hemas Holdings PLC.
Hemas Holdings PLC (2025a) Annual Report 2024/25.
Colombo: Hemas Holdings PLC.
Hemas Holdings PLC (2025b) Interim Report 2024/25 Q3.
Colombo: Hemas Holdings PLC.
Institute of Chartered Accountants of Sri Lanka
(ICASL) (2024) Code of Ethics for Professional Accountants. Colombo: ICASL.
LankaBIZZ (2024) Hemas Holdings PLC: Profitability and
Financial Performance for year ended 31st March 2024. [Online] Available at:
https://lankabizz.net/2024/05/23/hemas-holdings-plc-profitability-and-financial-performance-for-year-ended-31st-march-2024/
[Accessed: 10 May 2026].
Seal, W., Garrison, R. and Noreen, E. (2018)
Management Accounting. 6th ed. Maidenhead: McGraw-Hill.
Sri Lanka Accounting and Auditing Standards Monitoring
Board (SLAASMB) (2024) About SLAASMB. [Online] Available at:
https://slaasmb.gov.lk/ [Accessed: 10 May 2026].
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