Executives, managers, and employees also rely on the firm’s accounting system to provide needed financial information.
What is Accounting?
The process of systematically collecting, analyzing, and reporting financial information.
To improve accuracy of a firm’s accounting information and its financial statements, businesses rely on audits (inspection of individual’s or organizational accounts) conducted by accountants employed by public accounting firms.
1) Why Audited Financial Statements Are Important?
Audit – An examination of a company’s financial statements and the accounting practices that produced them. Without the audit function and GAAPs, there would be very little oversight or supervision
Generally Accepted Accounting Principles (GAAPs) – An accepted set of guidelines and practices for companies reporting financial information and for the accounting profession.
FAST which establishes and improves accounting standards for U.S. companies is working toward establishing a new set of standards that combines GAAPs with the IFRS to create one set of accounting standards that can be used by both U.S. and multinational firms.
For multinational firms, the benefits of global accounting standards are huge because preparing financial statements and accounting records that meet global standards saves both time and money
2) Reform: The Sarbanes-Oxley Act of 2002
AAccording to John Bogle, founder of Vanguard Mutual Funds, “Investing is an act of faith.”
To help ensure that corporate financial information is accurate and to prevent the type of accounting scandals that have occurred in the past, Congress enacted the Sarbanes-Oxley Act in 2002.
However, complex rules make compliance more expensive and time-consuming for corporate management and more difficult for accounting firms.
3) Different Types of Accounting
Accounting is usually broken down into two broad categories: managerial and financial.
- Managerial Accounting – Provides managers and employees with the information needed to make decisions about a firm’s financing, investing, marketing, and operating activities.
- Financial Accounting – Generates financial statements and reports for interested people outside an organization.Stockholders, financial analysts, bankers, lenders, suppliers, government agencies, and other groups use the info provided by financial accounting to determine how well a business firm has achieved its goals.
- Cost Accounting – Determining the cost of producing specific products or services.
- Tax Accounting – Planning tax strategy and preparing tax returns for firms or individuals.
- Government Accounting – Providing basic accounting services to ensure that tax revenues are collected and used to meet the goals of state, local, and federal agencies.
- Not-For-Profit Accounting – Helping not-for-profit organizations to account for all donations and expenditures.
4) Careers in Accounting
Job opportunities for accountants, as well as auditors in the accounting area, are expected to experience a 16% increase or about average employment growth between now and then year 2020.
- Private Accountant – Employed by a specific organization.
- Public Accountant – Works on a fee basis for clients and may be self-employed or be the employee of an accounting firm.
- Certified Public Accountant (CPA)
An individual who has met state requirements for accounting education and experience and has passed a rigorous accounting examination.
State requirements include a college degree or a specified number of hours of college course work and generally from one to three years of on-the-job experience.
Certification as CPA brings both status and responsibility and are hired to audit their firm’s financial statements.