The question above which is the title of this posting often emerge in the mind of young people who intend to join the accounting profession or for others who may want to know more about the role of accountant in business rather than just being satisfied with the common perception that being an accountant is all about dealing with facts and figures etc. balance sheet, income statement and so on.
To aid us in explaining our point of view on this subject matter, let us first define a few terms which will be related directly to the question (title of post) which are the terms "business" and "accountant" and those terms that may be used in the explanation later.
The definition of the terms are as followed:
BUSINESS:work relating to the production, buying and selling of goods and services
ACCOUNTANT: a person whose job is to keep financial account
FINANCIAL: involving or relating to money
RISK:the possibility that something unpleasant or negative may happen.
Having define all the essential terms, it is necessary to look back at history on accounting.
A short excerpt from Wikipedia may give us an idea on how long accounting though during the time not in monetary terms but rather in the exchange of goods and the quantities involved since barter trade came into existence first before money was commonly accepted as a medium of exchange.
"Accountancy's infancy dates back to the earliest dates of human agriculture and civilization (the Sumerians in Mesopotamia, and the Egyptian Old Kingdom). Ancient economic thought of the the Near East facilitated in the creation of accurate quantities and relative value of agricultural products, methods that were formalized by trading and monetary systems by 2000BC)"
It is important to note that while business may be carried out with or without money with the aforesaid explanation, however monetary system which set values for tangible things or services using numbers and has now become an international yardstick and hence further discussion on the subject matter will be related to the monetary system. Through a long period of time along with Luca Pacioli contribution's in the field of accounting and who was also thought as the father of modern accounting, a certain set of principles and guidelines has been laid down which is duly applied in contemporary accounting practices depending on the arising needs of different businesses as well as legal obligation.
Having given a rather informative introduction which has not answer the question, lets move on to a few points which may be relevant to our discussion now.
1. Accountant helps in managing money or to be more specific cash flow of the company for continual sustainability of the business. It it worthwhile to note that while each company has resources which may or may not be measured by money, the resources available are finite and must be used efficiently to create the desired end point(s). To stick to our parameter of our discussion, we will talk about resources in monetary terms. For example, a company has a certain amount of money and may choose to acquire a land as an asset. However several land are sold at the price within the affordability range of the company but are located in different places. The company has only the privilege to buy a piece of land out of the several options made available due to limited fund. Hence an accountant may step in and analyze the profitability of the acquisition of each asset and to make suggestion to the board of directors or top management level on which choice will be most suitable for the interest of the company in the long run. This is the basis for "investment centre" as stated in ACCA F1 Chapter 1 where the term "return on capital employed (ROCE)" will come into picture
2.An accountant plays the role in the final preparation of financial or management report of a business. It is important to know the difference between this two report but we are not going into the details. Ultimately the goal of these report is to allow stakeholders know the overall performance and standing of a company measured yet again in monetary values based on the parameter system and hence aid them in formulation of new strategy or further fine tuning of existing strategy taking into consideration the intended direction on the company in the future. Speaking on this part, the crediblity of an accountant is very important in preparing an accurate and complete report which are key attributes to good reporting as stated in ACCA F2 syllabus chapter 1:Accounting in Management. This is because inaccurate information may lead to wrong decision making which may eventually lead to the demise of a business if no corrective steps are taken.
3.With regards to point no.2, an accountant also has the responsibility things that are not quantified by the monetary system yet somehow will affect the monetary figures that appear on different aspects of financial reporting. This comes in during analysis where one try to consider how the one thing affect the other thing or simply "walking backward" by finding out what factors produces effect in monetary terms.
4.As mentioned much earlier on legal obligation, an accountant has the duty to ensure financial reporting of the company is in line with the standards set whether by local government or regulatory bodies in the international arena. Since monetary resources are limited, it would not be in the best interest of the company to pay high tax. Hence equipped with the knowledge, an accountant can act as adviser to help company save money by paying less tax on certain key areas in compliance with the taxation law laid down and hence bring about the efficient use of monetary resources
5.Accountant are in a position where they can easily know how a business is performing. In the simplest way for a business to be performing for sustainability, the benefit produced must outweighed the cost of using available resources. Hence an accountant may be able to suggest sales target to maintain profitability of a business by taking into consideration that the revenue must outnumbered the cost of using various resources used. This is when collaboration between the accounting department which is involved in giving account of the performance of the company and the marketing and sale department which identify need of consumers and selling products becomes an important relationship with regards to the context
6.Yet linking to point no.2, an accountant must consider the risk factor in all business decision. While risk may or may not be realized and there goes a saying "the higher the risk, the greater the gain" , it is essential that the accountant list out the risks for each decision or policy drafted out to strike a balance between safety and risk so as to maintain control over the business and not fully subjecting it to the volatility of the market and the demand of human being. It is important to note that based on the parameter set, there are no such things as good risk or bad risk, but only high risk or low risk.
7.An accountant on the management level may help in identifying the weak link between different levels or groups in the company as one of the main job of accountant is to ensure effective communication of financial report. While the term link may be subjected to various interpretation, here we would like to state that the link mean the transfer of financial information for the purpose of overall evaluation of the business by top level management. To think of it in deeper sense, it also allow the accountant to act as an investigator and detect fraudulent act which may exist as anomalies in financial reporting and cause things to not add up, thus showing the weak link. That's when internal auditing come into the picture
8.While an accountant may constantly evaluate the efficiency of the use of resources which may lead to different business investment decision and can be linked to the first point, an accountant may provide some other important information which may be financial or non financial in nature through the management information system (MIS) to aid the company's decision maker to restructure itself internally and not necessarily only when the company has file for bankruptcy order in order to maintain the efficient use of limited resources to sustain itself as an organization and to be prepared to face tough competition and other uncertainties.
Having said all these, we hope that we had at least painted a picture that everyone could understand even if not all of it. It is with great hope that by furthering our understanding in accounting by moving forward in our ACCA syllabus as time goes by that we can a greater understanding and when being asked this question again, we could answer it from more perspective and with greater maturity. Thank You
Posting done by Harry Chew courtesy of ideas from members of The H&P Company, Mr.Bill and classmates
(p.s Mr.Bill, I'm not able to come out with 10 points as i tried my best while at the same time taking care not to overlap points but rather cross linking it in an appropriate manner. Do point out to me any concept or ideas i may had misunderstood to prevent further misunderstanding as we progress forward according to the layout of the syllabus)
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