Accounting and Finance - Essay Example

?Accounting and Finance Table of Contents Introduction 3 2. Critical Discussion of the ment 4 3. Conclusion 11 4. Learning Outcomes 13 References 15 1. Introduction Accounting and finance plays a crucial role in the modern era which is also observed to be strongly business centric. As accepted by majority of the experts, accounting and finance have been into operations since ages. With a continuous development of the mankind and human civilisation the implication of accounting and its importance also have changed to a considerable amount. As stated by Elliott & Elliott (2007), “Accountants are communicators. Accountancy is the art of communicating financial information about a business entity to users such as shareholders and managers.” This statement provides a brief reflection of the role played by accountants and the implication of accountancy in the modern day phenomenon. Hereby, the paper intends to critically evaluate the statement with due consideration to the modern day perspective of accountancy. The discussion of the paper will initially aim at analysing the role of accountancy in the 21st century and later proceed with the intention to evaluate the similarities and dissimilarities between two major facets of modern accountancy, i.e. financial accounting and management accounting. The major users of these accounting methods will also be considered in the paper. Furthermore, it will aim at identifying the implications of these accounting standards. Conclusively, the paper will produce a comprehensive reflection of the learning outcomes from the paper. 2. Critical Discussion of the Statement It is of no doubt that accounting plays a central role in maintaining records of the financial transactions of businesses. It is often referred to as a process that encompasses a series of actions from collecting financial data on a regular basis to communicating the information to its users through financial statements. Thus, it emerges as a complex and broad concept to be defined concisely (Banerjee, 2010). Moreover, it was also observed that accounting had a vital influence on the strategic decisions of the businesses which provided the concept with a managerial definition of a communicator. Emphasised on these characteristics of modern day accounting, experts have intended to categorise the concept in two parts, i.e. financial accounting and management accounting (Tyagi & Tyagi, 2003). Financial accounting is considered to be the pathway of gathering financial information and analysing the effects of such information on the managerial decisions of the business unit. As stated by Albrecht & Et. Al. (2007), financial accounting is particularly “concerned with reporting financial information to interested external parties”. In this regard, the accounting process emphasises on maintaining records of the financial transactions. It further concentrates on the analysis of the obtained information with the aim to assist the management in decision-making. The accounting process also tends to identify various strengths as well as weaknesses possessed by the business units in financial terms. Through the implication of the accounting process, accountants concentrate on communicating the information with the assistance of variou9733436912s financial statements, such as balance sheets, cash-flow statements, annual income statements and others (Jagels & Ralston, 2006). Similarly, the concept of management accounting is referred to as the process to inform the management of a business regarding the financial status of the company. In a broader perspective, the accounting process intends to analyse the financial information strategically with the aim to relate the financial strengths along with weaknesses of the company with its strategic decisions. Notably, the decision can be related to the investment of working capital, future expansion of the product line or market area, mergers and acquisitions or even solvency (Albrecht & Et. Al., 2007). According to various professionals, management accounting is also referred to be a further extension of financial accounting as it concentrates on the aspects of cost accounting as well. It is often termed to be a conceptual approach to accounting which assists the management to enhance the efficiency and effectivity of the business to a large extent. With a broader perspective, the concept of management accounting also focuses on the various facets of cost accounting (Ansari & Et. Al., n.d.). One of the major attributes observable in cost accounting is the consideration provided to both the cost of products and the services used in the organisational operations. It not only focuses on accounting the costs, but also intends to control the costs of products as well as services with the implication of cost breakdown system. Thereby, the process signifies the core influencing factors which affects the costs of products and also services which in turn assists the management in developing the managerial operations for enhanced profitability of the business. With little exclusion, the information derived from the cost accounting process is not dependent upon the verification of external auditors or government in relation to structural issues and authenticity. Furthermore, the information used in cost accounting aims at reporting to the internal users rather than the external parties related to the business (Institute of Cost and Works Accountants of India, n.d.). It is in this context that management accounting accumulates the various characteristics of financial accounting and cost accounting to support the function of management in a systematic and effective manner. It not only intends to record the financial transaction of a company on a regular basis, but also aims at analysing the statements to identify the profitability of the business and further concentrates on developing it. Therefore, management accounting can be identified to consider the fundamental aspects of accounting which enhances its applicability and effectivity in the modern day context. For instance, if the financial statements depict the company to have a huge profit in a particular year and are further projected to be at a healthy stage for the future years, the managerial decisions are likely to be in favour of investments. These may be in terms of market expansion or may direct the managerial decisions towards mergers and acquisitions. Therefore, accountants in executing management accounting process also play the function of a communicator. Hence, it is quite evident that the communication takes place between the financial statements and the external users of the information derived from the financial as well as management accounting procedures. To be mentioned, the external users in relation to financial information can be identified as the shareholders, stakeholders and managers. Stating precisely, the information can be applied by the parties who are directly or indirectly related to the future prospects of the business and have an interest in the company’s growth (Elliott & Elliott, 2007). It is worth mentioning that the users of management accounting information also uses the data obtained from financial accounting as well as the information obtained from the implication of cost accounting principles. As stated by the experts, financial statements play a key function in the accounting process. These statements are further used by the employees/stakeholders of the company, by its lenders, and owners/shareholders (Jagels & Ralston, 2006). To be precise, the intentions of financial accounting are to record financial transactions; classify the records for further analysis; prepare financial statements; and communicate financial sustainability to the stakeholders, shareholders and government. Information derived from financial accounting is also reliant on the legal requirements and verification from the external auditors. It is in this context that the accounting process involves itself as the communicator of the company’s financial stance to the users existing in the internal ambience of the organisation and the external members (Institute of Cost and Works Accountants of India, n.d.). However, there exists a significant difference between the users of information derived from management accounting and that obtained from financial accounting. The users of management accounting can be identified as the core decision makers of the business who have their sole interest related to the strategic growth of the company e.g. the top level management team and the middle level managers. On the contrary, the information derived from financial accounting is essentially used by the stakeholders, auditors, shareholders, investors and management accountants also in order to relate the information with the managerial interests (Albrecht & Et. Al., 2007). Furthermore, financial accounting primarily aims at providing information to the stakeholders and shareholders of the company in order to communicate the financial strengths and weaknesses. Other than the internal parties, financial accounting also depends on the legal requirements to signify the structure of financial statements and the confirmation of external auditors. On the contrary, the dependence on legal issues in terms of structure is quite limited in the case of management accounting. Moreover, the implication of management accounting is also free from the confirmation of external supervisors, such as auditors and governments. Dissimilarities can also be identified in the purposes of using financial statements as the providers of information concerning the financial health of the company. To be mentioned, the users of information derived from financial accounting is used with the purpose of analysing the corporate stance of the company in financial terms which is further expanded to the identification of strengths as well as weaknesses possessed by the entity. In management accounting the objective of the users can be identified as an extension of financial accounting. The principal objective of the users of information obtained from management accounting is to analyse and evaluate the financial statements with the sole purpose of supporting or opposing the strategic decisions (Needles & Et. Al., 2007). Another key difference between financial accounting and management accounting is related to the mechanism of the concepts. As can be evidently observed financial accounting considers only the financial aspects of a company’s transactions. On the other hand, the mechanism of management accounting considers both financial and non-financial aspects of the overall organisational operations. Although, the aspect develops the accounting system to be quite complex, it also rewards it with more efficiency as a communicator (Ansari, n.d.). Relating these facets of modern day accounting with the statement provided by Elliott & Elliott, it can be observed that financial statement evidently communicate information with its users irrespective of the purpose they are being used for. For example, financial statements are used by the stakeholders of the company to be acquainted with its financial progress and competency. On the similar context, the statements are used by the top level managers to justify the strategic decisions adopted with the purpose to attain the ultimate objective of the company. In both the cases, financial statements play a key role in communicating relevant information to the users and thus can be observed as a means of communication supporting the statement of the authors. It is worth mentioning that financial accounting, accumulated with the attributes of management accounting, signifies the implication of modern day accountancy. Accepting the fact it can further be recognised that accountants are the sole communicators of the financial information as the statements are organised by them. Therefore, accountancy can also be referred to as the art or process of deriving the financial information. 3. Conclusion Demski (2008) states that accounting systems provide with a different language to the business considering the aspects related with the financial progress of the company, such as the net assets owned by the owners of the business, the net quantity of liabilities, costs of goods and/or services sold, income and profits at periodical intervals and others. In order to communicate these attributes to the users of accounting, financial statements are used by the accountants. Stating precisely, financial statements can be categorised as the system which is used by the accountants to interpret the information and communicate it to the management of the company as well as to the external parties (Demski, 2008). It is worth stating that the accounting information in the case of financial accounting is mostly indicated to the external users, such as auditors and government to depict the financial sustainability of the company. On the similar context, information generated from the implication of management accounting is principally directed to the internal users of the company, especially to the parties pragmatically related with the decision-making process of the company (Needles & Et. Al., 2007). The mechanism of financial and management accounting also differs in terms of objectives. For instance, financial accounting only considers financially accountable aspects with the purpose to reflect the financial position of the company. On the other hand, management accounting considers financial as well as non-financial aspects equally to support or oppose the strategic decisions of a company and thus play a key role in assisting the managerial decisions. In this regard, the approach considers the fundamental factors that create an impact on the managerial decisions from the internal environment. However, in both the instances the role of accounting statements is related to the communication of relevant and significant information to its users. It is in this context that accountants are signified as the communicator. Therefore, it is the sole responsibility of the accountants to communicate the information according to the demands and interests of the users (Elliott & Elliott, 2007). 4. Learning Outcomes Research papers have at all times been useful in developing an unambiguous and comprehensive knowledge regarding a specific subject. With elaborated and rational understanding of the topic indicated in a research, learners have been benefited with the identification of the fundamental aspects related to the topic. These advantages were also quite evident in this context. The research problem can be identified in this case as the role of modern accountancy and the functions of accountants as a communicator of financial information to the internal as well as external parties concerned with the future prospects and current performances of the company. As it is evident, the topic provides an insight of the mechanism of accounting. It is in this context that the learning of the mechanism implied in modern accountancy was quite beneficial in identifying the various attributes of financial and management accounting processes. The key findings of the research depict financial accounting and management accounting to be correlated with few similarities as well as dissimilarities. To be mentioned, the two concepts differ in terms of consideration to the financial and non-financial attributes; these also differ in terms of the purpose of generating the information. Moreover, the implications of the two concepts vary in terms of liabilities as well. For example, financial accounting is liable to communicate the information to the internal and the external parties and should be based on a pre-determined structure by the regulatory bodies. But, in the case of management accounting, the accountants are liable to communicate the information to the internal parties and have limited influence caused by the legal arrangements and the external parties. The research was also beneficial in identifying the sole purpose of accounting. As can be evidently stated with reference to the research findings, accountancy deals with the communication of financial information to the ultimate users. It is aimed at supporting the management in controlling the business operations with considerable significance to the financial position of the company. This concern of accountancy certainly proves to be advantageous for the company’s strategic decisions providing rational and accountable information regarding the current status of the company, in financial terms. The mechanism of management accounting also rewards the opportunity to forecast the future performance of the company providing an insight of the financial health of the company. It was also beneficial in recognising the limitations of the processes, such as complexity, wide applicability which in turn increases confusion for the users and the appliers too. Conclusively, the paper proved to be quite beneficial in gaining in depth knowledge regarding the sole purpose of accountancy. As experts signify the approach to provide an extra edge to the management decisions, accountancy operates a mode of communication between the financial health of the company and its stakeholders, shareholders, auditors, and government as well. The financial statements are considered as the communicating tools, while the accountants are termed to be the communicator. Thus, the paper was quite beneficial in increasing my knowledge on the subject which shall certainly assist me in the future. References Albrecht, W. S. & Et. Al., 2007. Financial Accounting. Cengage Learning. Ansari, S. & Et. Al., No Date. Strategy and Management Accounting. Houghton Mifflin Company. Banerjee, B. K., 2010. Financial Accounting: Concepts, Analyses, Methods and Uses, 1/e. PHI Learning Pvt. Ltd. Demski, J. S., 2008. Managerial Uses of Accounting Information. Springer. Elliott, B. & Elliott, J., 2007. Financial Accounting and Reporting. Financial Times Prentice Hall. Institute of Cost and Works Accountants of India, No Date. Management Accounting. Cost and Management Accounting. Jagels, M. G. & Ralston, C. E., 2006. Hospitality Management Accounting. John Wiley and Sons. Needles, B. E. & Et. Al., 2007. Principles of Accounting. Cengage Learning. Tyagi, C. L. & Tyagi, M., 2003. Financial and Management Accounting 2 Vols. Set. Atlantic Publishers & Dist. Read More