The Role of accounting in an
organization
Figure 1
Brandix PLC Logo
Accounting is the process
of gathering, organizing, and methodically documenting financial business
transactions; it also includes creating financial reports, analyzing and
interpreting them, and using them to advise and direct management decisions.
Accounting is the
identification, measurement, recording, and dissemination of financial data.
The author can define
Accounting is the study of all an individual's or an organization's financial
operations that can be accurately documented in the book of accounts and whose
accurate outcome is known at the conclusion of a certain time period
Scope of accounting
Accounting covers a wide
range of financial record-keeping, analysis, and reporting activities inside a
business. It is essential to the operation of firms and other entities because
it offers insights and information that facilitate financial management and
decision-making. The following are some significant facets of accounting's
scope:
Financial Accounting:
The most well-known area of accounting is financial accounting. It entails
documenting financial activities, compiling them into financial statements
(cash flow, income, and balance sheets), and delivering these documents to
creditors, investors, and government regulators, among other external
stakeholders.
Managerial Accounting:
Previously referred to as cost accounting, this division focuses on giving
internal data to support decision-making by management. It entails forecasting,
performance analysis, budgeting, and cost tracking.
Tax Accounting:
Tax accountants are responsible for making sure that tax laws and regulations
are followed. They assist people and businesses in accurately submitting their
tax returns and calculating and minimizing their tax bills.
Audit and Assurance:
Auditors evaluate the dependability and correctness of financial data. Internal
auditing can be used for these goals, while external auditing can be used to
give assurance to stakeholders like investors and regulators.
Management Consultancy:
Accountants may offer management consulting services to assist companies in
streamlining operations, creating strategic plans, and enhancing their financial
performance.
Financial Analysis and
Planning: Analysts and planners of finances
anticipate future financial performance, evaluate potential investments, and
assist businesses in developing their financial plans.
Forensic Accounting:
The field of forensic accounting looks at fraud and other financial
irregularities. Financial wrongdoing cases frequently involve the use of
forensic accountants.
Purpose of accounting
Accounting has many
different applications and fulfills several significant roles in both
businesses and society at large. These are a few of accounting's main goals,
Financial
statistics and Information for Decision-Making: Accounting offers statistics and financial
information that supports educated decision-making for both individuals and
organizations. It facilitates decisions on loans, investments, resource
allocation, and other financial issues.
Performance
Evaluation: Accounting makes it possible to evaluate
the long-term financial performance of an organization. Financial statements
from various time periods can be compared to find patterns, advantages,
disadvantages, and opportunities for development.
Financial
Reporting: Accounting produces financial statements, including
cash flow, income, and balance sheets. This is known as financial reporting.
These reports provide a summary of an organization's financial performance and
position, which facilitates the evaluation of the entity's financial state by
stakeholders such as creditors, investors, and management.
Resource
Allocation: Accounting
helps businesses decide how best to distribute their resources. Management can
decide whether to expand operations, invest in new projects, or stop
unprofitable activities by examining costs, revenues, and profitability.
Risk
management: Accounting
is essential to recognizing and controlling financial risks because it enables
businesses to create plans to lessen possible losses and financial
difficulties.
Asset Protection: By keeping track of an entity's assets'
acquisition, usage, and disposal, accounting contributes to their protection.
Internal controls and the prevention of fraud depend on this.
Accountability
and Transparency: Accounting
encourages accountability and transparency in financial reporting by holding
companies accountable to stakeholders for their financial performance and
choices.
Role
of financial accounting in the decision-making process of the organization and
meeting stakeholders needs and expectation
For a corporate
organization to meet the demands and expectations of stakeholders, financial
accounting is essential to the decision-making process. Here is how it carries
out these duties:
Providing Financial Information: A
business's financial transactions are documented and summarized through
financial accounting. It offers data on earnings, outlays, assets, liabilities,
and equity.
Planning and Budgeting: To
create financial forecasts and budgets, financial accounting data is necessary.
Businesses set financial goals, allocate resources, and make future plans using
past financial data.
Performance Evaluation: A
company's financial performance can be evaluated by stakeholders using
financial statements like the income statement and balance sheet. These
statements are used by creditors, investors, and management to
assess profitability, liquidity, and solvency.
Risk assessment: Prior to making lending
or investment decisions, stakeholders must evaluate a company's financial
standing. When assessing the risk of lending to or investing in a business,
financial accounting offers useful information.
Resource Allocation: To
effectively distribute resources, businesses need financial data. This covers
choices on capital expenditures, cost management, and distributing funds across
different departments or projects.
Reporting and Compliance: Financial
accounting makes ensuring that a company abides by rules and standards related
to accounting. In order to satisfy the demands of shareholders, regulators, and
other stakeholders, financial reporting must be accurate and transparent.
Communication with Stakeholders: The
main channel for informing external stakeholders such as shareholders,
creditors, and potential investors about financial information is through
financial statements, including the annual report.
How does accounting meets the needs and
expectations of the society?
Accounting provides an
organized framework for recording, evaluating, and reporting financial information,
which is essential in meeting society's expectations and needs. It benefits
numerous parties and advances a society's general stability and economic
well-being in several ways,
Financial Transparency: Accounting
makes the financial operations of companies and organizations transparent. For
creditors, investors, and other stakeholders who depend on financial statements
to make wise decisions, this transparency is crucial.
Investor Confidence: Investors are reassured by the accuracy
and consistency of financial statements. Investors are more inclined to invest
in enterprises when they have confidence in financial information, which in
turn helps to raise funds for economic expansion and job development.
Taxation: To guarantee that people and businesses pay their fair
amount of taxes, governments rely on accounting to collect those taxes.
Accurate tax accounting aids in the financing of public works and
infrastructure by governments.
Economic Decision-Making: To make well-informed
choices about monetary and fiscal policy, policymakers, economists, and
government representatives consult accounting data. Growth and stability in the
economy may be impacted by these choices.
Wealth Distribution: Income inequality and wealth disparities
within a society are evaluated using accounting data. This aids in pinpointing
places where social inequality may require attention.
Business Management: Accounting plays a critical role in
helping business owners and managers monitor financial performance, control
expenses, and make strategic decisions that support the long-term viability and
expansion of their companies.
Main branches of
accounting
1. Financial Accounting:
The production and reporting of financial data for external stakeholders,
including creditors, investors, regulators, and the public, is the main focus
of financial accounting. In order to give a quick overview of a company's
financial performance and condition, financial statements such as the income
statement, balance sheet, and cash flow statement are created.
2. Managerial Accounting:
Often referred to as cost accounting, managerial accounting is the process of
giving internal management financial data so they can make decisions. This area
of accounting provides data on expenses, budgets, performance, and other
pertinent information to assist managers in planning, controlling, and making
strategic decisions.
3. Tax Accounting: To
ensure compliance with tax rules and regulations, tax accounting entails
preparing and filing tax returns for both individuals and businesses. Tax
accountants assist in reducing tax obligations while abiding by the law.
4. Auditing: Examining
financial accounts, internal controls, and accounting systems in order to
provide an unbiased evaluation of their accuracy and dependability is the
process known as auditing. Auditors make sure that there are no significant
frauds or misstatements in financial data. There are several kinds of audits,
such as internal audits carried out by corporations themselves and external
audits carried out by independent CPA firms.
5. Financial management:
Effective financial management is an essential component of managing any type
of organization, including businesses, nonprofits, government agencies, and
even an individual's own funds. To accomplish particular goals and objectives,
it entails organizing, managing, and keeping an eye on the financial resources
and activities. These are the main elements and tenets of financial management.
Job
skills and competencies
Technical skills
Ability to prepare and
analyze financial statements, such as cash flow, income, and balance sheets, is
a prerequisite for financial reporting.
Accounting Software:
Working knowledge of enterprise-level systems like SAP or Oracle as well as
accounting software programs like Xero and QuickBooks.
Knowledge of Generally
Accepted Accounting Principles (GAAP) and International Financial Reporting
requirements (IFRS): Depending on the applicable reporting requirements, a
thorough comprehension of either set of standards.
Taxation: Knowledge of
tax planning, tax rules and regulations, and preparing individual and corporate
tax returns.
Audit and Assurance:
Proficiency in auditing, comprising knowledge of audit techniques, evaluation
of risks, and adherence to auditing guidelines.
Cost accounting: The
ability to analyze costs, estimate costs for tasks, and control costs to help
businesses run more efficiently.
Financial Analysis: The
capacity to examine and evaluate financial information
Financial Modeling: Building
complex financial models to support forecasting, budgeting, and strategic
planning.
Account Reconciliation:
Expertise in reconciling accounts, identifying discrepancies, and resolving
issues.
Accounting Systems and
Technology: Knowledge of accounting information systems and the ability to
leverage technology for efficient accounting processes.
Regulatory Compliance:
Understanding and adherence to regulatory requirements relevant to the industry
or organization.
Financial Modeling:
Building complex financial models to support forecasting, budgeting, and
strategic planning.
Account Reconciliation:
Expertise in reconciling accounts, identifying discrepancies, and resolving
issues.
Accounting Systems and
Technology: Knowledge of accounting information systems and the ability to
leverage technology for efficient accounting processes.
Regulatory Compliance:
Understanding and adherence to regulatory requirements relevant to the industry
or organization.
Competencies and Soft
Skills:
The capacity to identify
mistakes, discrepancies, and irregularities in financial documents and reports
is known as attention to detail.
Analytical thinking
involves examining intricate financial data, seeing patterns, and coming to
conclusions based on facts.
Effectively communicating
financial information, both orally and in writing, to stakeholders with and
without financial backgrounds is known as communication.
Ethical Behavior:
Upholding the strictest moral principles since accountants frequently deal with
private financial data.
Problem-Solving: Finding
effective and efficient solutions to accounting problems, inconsistencies, and
difficulties.
Time management is
setting priorities, adhering to schedules, and efficiently handling duties,
particularly during busy times like tax season.
Teamwork: Working
together with coworkers and cross-functional groups to accomplish shared
financial objectives.
Adaptability: Remaining
current with technological advancements and accounting standards, as well as
being flexible in the face of these changes.
Role
of technology in modern day accounting
Financial technology
Fintech, short for financial technology, is the term for new technology
designed to enhance and automate the provision and use of financial services.
Fundamentally, fintech helps businesses, entrepreneurs, and consumers manage
their finances more effectively. It also helps them manage their lives. It
basically functions by breaking down the offerings of these companies and
creating new markets for them. Examples of financial technology include stock
trading, portfolio management platforms, crowdfunding sites, regtech, and so
forth. Numerous financial applications are available, including Sage Intacct,
Tally, SAP, ERP, Xero, QuickBooks, Advance EXCEL, and others.
Our company uses QuickBooks because it is user-friendly,
customer-focused software for financial management. When it comes to safety and
flexibility to new technology, QuickBooks is the best software available.
Financial Reporting:
Accurate and real-time financial reporting is made possible by technology.
Financial data can be updated in real-time and financial statements can be
produced fast, giving decision-makers timely and pertinent information.
Cloud Accounting:
The industry has undergone a transformation with the introduction of
cloud-based accounting systems. These solutions provide data security,
collaboration, and remote access. Accountants have the flexibility to work
remotely, connect with colleagues and clients with ease, and feel confident in
the knowledge that their data is frequently backed up and secure.
Business intelligence and
data analysis: Thanks to technology, accountants now
have access to sophisticated business intelligence and data analytics tools.
They may now find patterns, irregularities, and opportunities by analyzing
financial data. Strategic planning and decision-making are improved by this
data-driven methodology.
Cost Reduction:
Businesses and accounting firms can save money by using technology to automate
processes and increase productivity. Operational costs can be decreased by
reducing the amount of paperwork, physical storage, and manual labor.
Improved Communication:
Accountants, clients, and stakeholders may communicate more easily thanks to
technology. Sharing information and having financial discussions is made easier
by email, video conferencing, and online collaboration tools.
Mobile Accounting:
Using apps on smartphones and tablets, accountants can access financial data
and carry out duties. More reactivity and mobility are made possible by this
flexibility.
Machine learning and
artificial intelligence (AI): These two fields of
study are being applied to accounting to do tasks including automatically
classifying spending, detecting fraud, and forecasting financial trends.
Security:
Thanks to technology, financial data is now more secure. To prevent unwanted
access to sensitive financial data, audit trails, access controls, and
encryption are employed
Blockchain:
The use of blockchain technology to record financial transactions in a
transparent and safe manner is being investigated, which can help reduce fraud
and improve auditing processes.
Compliance and Regulation:
Technology helps accountants stay compliant with changing regulations and tax
laws. Software can automatically apply tax updates and ensure accurate
calculations for various tax requirements.
Data analysis:
To find trends, anomalies, and opportunities in financial data, accountants use
sophisticated data analytics and business intelligence tools. This makes
strategic planning and decision-making possible.
Integration:
A lot if accounting software packages can be integrated with other business
apps, including payroll, inventory, and customer relationship management (CRM)
programs. This connection improves overall productivity by streamlining data
flow and minimizing manual data entry.
Recommendation
Considering how important
accounting is to the company, it is advised that companies make investments in
cutting-edge technologies and accounting systems to improve financial
operations. To improve productivity, accuracy, and decision-making, this
involves putting automation technologies, cloud-based accounting software, and
data analytics into practice. In order to keep its accounting staff informed
about new developments in technology, emerging trends, and industry rules,
firms should also place a high priority on providing them with regular training.
Conclusion:
In summary, accounting
plays a variety of roles in a business and is essential to its overall success.
Accounting performs strategic roles in decision-making and performance
assessment in addition to its conventional duties of financial recording and
reporting. Organizations may optimize their accounting function and ensure
financial integrity and continued growth by embracing technological
advancements, investing in ongoing training, promoting teamwork, and adopting
effective internal controls. Organizations will be better positioned for
long-term success in a dynamic business environment if they view accounting as
a strategic asset rather than just a compliance need.
References
Drebin, B. a., 2022. expertpreview. [Online]
Available at: https://expertpreviews.com/definition-of-accounting-by-different-authors-10-definitions-of-accounting/
[Accessed 20 10 2023].
Johnson, A. W., 2022.
expertpreview. [Online]
Available at: https://expertpreviews.com/definition-of-accounting-by-different-authors-10-definitions-of-accounting/
[Accessed 20 10 2023].