Many people associate accounting to numbers. Is it really all about numbers? No. Accountants do more than that.
Depending on who you asks, you will get different definition of accounting. This is probably because of the different fields of accounting. Generally, we collect financial data, process and report factual information about a subject matter to users. A subject matter can be the financial position and results of an entity, costs of production, etc. Users use this information to make decisions. In modern days, accountants may also involve in proposing solutions and/or making decisions.
Many people think that we only crunch numbers. It might be true half a decade ago, but our profession evolved over time to meet the needs of users. While numbers are still a significant part of our job, we do provide qualitative information nowadays.
Here are some examples of different fields of accounting that are commonly seen: financial accounting, cost accounting, auditing, tax.
Accountants are tasked to report the truth. But many a time, this is not in line with the interest of the person paying us. This is true for those in the public practice (i.e. accounting firms) as well as private practice (i.e. accounting department of a company). We are trained in schools to act in the interest of financial information users. But, it is not uncommon for a new accountant to find himself/herself in a dilemma. Report or not to report?
Financial accounting
Financial accounting is a major field of accounting, which is commonly seen in the papers. Its objective of reporting the true and fair view of an entity’s financial health makes it crucial to capital markets. Quality financial information reduces the risks of investors by facilitating informed decisions making. Investors may not have direct access to the financial data of an entity, thus they rely on its financial statements to make their decisions.
If you have a dollar to invest, how would you decide which company would you invest? You would probably compare the financial statements of the potential candidates, then pick the best performer. If every company prepares financial statements in their own way, it will be very difficult for investors to make comparisons. Thus, we have our “law” book, the financial reporting standards (in some jurisdictions, it is called generally accepted accounting principles). The standards govern how a transaction is recorded, summarized / aggregated with other similar transactions and ultimately presented in the financial statements.
Like law, each jurisdiction has its own standards. But due to globalization, many national standards are very much in line with the international standard (International Financial Reporting Standards or IFRS). Most of us would encounter situations where we think that the standards are not clear enough for a particular transaction. That is when we exercise professional judgement with ethics.
Auditing
To further enhance the reliability of the financial statements, we have auditors, who provide assurance on those statements. Who are the auditors? They are an independent party who checks the accounts of an entity then provide an assurance report saying that the financial statements prepared by the company are true and fair in all material respects. What if the auditors found an error? They will discuss the matter with the company (most of the time, the in-house accounting department) to correct the error. Sometimes it can be judgemental, then it would take some time to resolve. If the auditor disagrees with the final statements, they will report as such in the assurance report if the disagreement is material. That is what we call a qualified report. A qualified report does not necessarily mean that the company did something bad. It might be because of a difference in judgement.
There is a well-known exception gap for audit, many people think that auditors are fraud investigators. They are not. Although the bigger audit firms have in house fraud team, the general audit procedures are not meant to catch fraud. Fraud investigation requires much more efforts than a normal audit. A usual financial statements audit is a risk-based one. The auditor would perform a risk assessment and focus on riskier items. Auditors do not examine every transaction of the entity and thus not able to provide absolute assurance.
What does it take to be an accountant
The 3 things you must have to be an accountant: integrity, integrity and integrity. Our jobs require us to maintain a high standard of ethics and integrity. So sometimes, we have to say no to lucrative rewards as it is our duties to defend the integrity of financial information.