Good Accounting Practice Is Vital to a Companys Success - Research Proposal Example

A Good Accounting Practice is vital to a Company’s Success Introduction Success of a company depends upon good management. It is the effective management of labour, financial resources, procurement of raw materials, production, marketing, sales and customer relationship. Every transaction is considered here in terms of cost value, and is accounted in books in a preconceived and designated manner. Precisely it is the accounting or recording of how money comes and how money goes and how much money is saved. Without this accounting of transactions no endeavor and no business will survive to flourish. The main characteristics of financial accounting are giving information about the asset, liability, equity, income and expense of a company. The key to the success of a business lies in the true accounting of the above elements in financial accounting. The public put trust on the transparency of the accounts and it will tell upon the good will of the company. If the accounting fails to meet the situations, the company will perish. Therefore, the qualitative characteristics of financial statements such as understandability, relevance, reliability and comparability should be enforced while preparing the financial accounting of a company. The qualitative characteristics will provide the necessary information to the creditors as well as the investors for keeping a watch on the performance of the company. This study is focused on the financial accounting practice related to a company with a very small investment. For a company instituted with a capital of ₤1000 the quantum of financial transaction will be very low. The labour management as well as the administrative costs will also be put to the minimum, accordingly. Here, the role and concern of the stakeholders are comparatively seen at the bottom level. Research Purpose & Research Question The purpose of this research is to show that a good accounting practice is vital to the success of a company. In order to establish this, the different aspects of accounting practices are to be taken into consideration focusing on how a good accounting practice can be conceived and implemented, in the case of a small venture which has a very low capital and low labour cost. To achieve this, it is necessary to analyse the general principles and possibilities of a good accounting practice and the way how it is applied to a small concern towards maintaining its existence. Accounting principles and practices In business, the entrepreneur is at stake because he has invested money to run the business. In big companies with large investment, the public may also put money in the capacity of share holders. This demands that the public has got a right to know about the revenue, expenditure and profit of the company. And the entrepreneur or the management of the company has got the responsibility to give the public the details of the performance of the company which are reflection of the financial accounts. Since the accounting of the transactions will represent the performance of the company, the accounting should be perfect and according to the established norms and if it fails to do so, the company’s image will be tarnished and it may become a failure. Therefore, a good accounting practice has to be maintained by every company whether it is big or small. Concepts and Theory Generally accepted Concepts in Accounting Practice Language is the lifeline of communication, whereas; financial statement is the languages of business. Accounting practice that is pursued shall not only be of required standard but also be conceptual and systematic. It should be based on globally approved order and design with all required fields well explained. The first and foremost principle of accounting is ethics. It is the basis of culture and civilization. The necessity to adherence to ethics is essential in the context of present day controversies and scandals cloud around corporate companies, and even small companies. Reports and cover stories are seen frequently about fraudulent accounting and misappropriation of funds to swindle banks, public and governments. Ethics are morals and obligations with regard to profession and relationship with the public. These are conduct rules to navigate the individuals, profession, establishment and the management. Moral responsibility must remain the focus of every person doing accounting practice. The global economy is in danger because of the unethical attitude in business and its related functions. The general public is highly concerned about this and it is high time that the business firms and other organizations should give proper attention to ward off the negative trends in the maintenance of ethics. To overcome the present economic crisis high ethical standards must be practiced. (Richard Boer, Fundamental Accounting, http://ezinearticles. com/?Fundamental-Accounting&id=2229470, viewed on 26th April, 2009) For establishing a good accounting practice in Companies, the role of auditors is crucial. They shape the accounting literature the way it required to be, for the benefit of public as well as the lenders. They will make the accounts user friendly to the managers, investors, tax authorities and other decision makers who are having interest in the company. Since these reports have far reaching effects, there should be efforts on the part of every company to adhere to book keeping based on accepted concepts, standards and practice which are given below. Entity : According to this concept the business is considered as a separate entity apart from the proprietor/shareholder/promoter. Monetary terms: The transactions which can be recorded in the books should be based on monetary terms. Cost Concept : Transactions are recorded at the cost involved i.e. actual cost incurred irrespective of its calculated or market value. Going concern: Transactions are recorded on the concept that the Company will exist for a long period of time. This is to separate the transactions so as to derive benefits for a long period as well as a short period. Two aspects : Every transactions is split and recorded under two heads of accounts. Effects of each transaction will lead to elements which well describe the nature of the transaction Realisation Concept: The accounting is done on the basis of real transactions which have taken place. It does not record estimated or future transaction elements. This is to reflect true and correct state of affairs of the business. Under this concept no inflated profit can be shown in the accounts by entering expected income. Accounting Period: There is a concept of an accounting period. Statements are periodically prepared i.e. every calendar year or any other period specifically will be followed. Matching Concept: The revenue heads in the books should have its counter parts in the expense heads. It must match. Consistency : Accounting methods adopted should be consistent and shall retain the same manner every year. It is seen that some companies adhere to the above and some don’t. The current scams in the accounting practice demands that legitimate companies shall declare their leniency to ethics. The companies that honestly adhere to ethics can be identified with "good intentions" whereas, those who fail to do so can be categorised as having "no good intentions". A well found ethics statement prepared in terms of the Company Values Statement, will create team commitment and understanding about the company’s line of operation and trustworthiness of the company’s performance. (http://www.sound-business-practices.com/rationale/company-principles-corporate-ethics.php, viewed on 26th April, 2009) It is generally and globally accepted that success of any company is backed by a team of strong and responsible Finance and Accounting personnel. It is evident that the communication language of a business is its financial figures. Growth of business and the company greatly depend upon these figures which come out to public. If the figures are required to be precise and sharp, standard and disciplined accounting practice should be maintained by the management of the company. And the very accounting practice should be based on the principles of professionalism at all levels. Despite governmental regulation and stress on accounting practices, and guidelines of professional accounting associations to adhere to ethical codes of conduct, it is disgraceful to note that ethics is being discarded by many in financial accounting, and the non adherence is termed as greed in business.  (http://www.aspencbe.org/newsletterar chive/ June08.html, viewed on 25th April, 2009) Company accounting principles Company accounting principles are the principles of valuation and determination of income of the company balance sheet and company income statement. “The principles used to value assets and liabilities and to determine income are based on historical cost. For the principles of valuation and determination of income, reference is made to the accounting principles”.( http:// www.where-people-matter.com/Default.aspx/76, viewed on 26th April, 2009) The success of a company whether it is small or big depends much on the reliable financial accounting practice. As such, a set of accounting principles are insisted to establish some transparency. These principles and the other standards are incorporated into GAAP to bring uniformity in accounting. GAAP are guidelines regarding a group of objectives to govern how financial statements are made. The figures prepared as per GAAP are used by investors and analysts to calculate financial ratios to evaluate the performance of a company. Therefore, accountants must make their financial reporting considering the needs of a company, but at the same time it should be as per GAAP (Basic Accounting Principles, Joseph Nicholson, eHow Editor , http://www.ehow. com/about_ 4691175_basic-accounting-principles.html, viewd on 26th April, 2009) Adherence to GAAP will help a company to maintain creditability with creditors and stockholders. It reassures the public that a companys financial reports reflect its financial position. The stockholders, creditors, security analysts and other companies will consider the accounts true only if it comply with GAAP. Banks and finance companies demand their clients to use GAAP, and investors using financial information prepared according to GAAP will fail to invest if the statements dont meet their expectations. ( What Are Generally Accepted Accounting Principles?), http://smallbusiness.yahoo.com/r-article-a-1571-m-2-sc-52-what_are_generally_accepted_accounting_principles-i, viewed on 26th April, 2009) Research Strategy & Research Design The strategy for this research proposal is conceived on the principles of prevailing accounting practice. The strategy developed is to pin point the necessity of proper accounting and to establish it without any doubt that if accounting practice fails the company will perish. The research is designed within the range of small scale industries and organisations. Otherwise, the subject being broad and sensitive will go beyond the limits. Here, the research is designed on the fact that small scale industries have a limited outlook and the accounting practice has constraints. It should be objective and convenient to the investor. It shall remain streamlined so that it will be readily accessible by he investor as well as by the persons who have interests in the company. The accounting should cross many areas and are founded on principles of integrity and fairness relating to accounting practices, product quality, customer satisfaction, employee wages and benefits, and local community and environmental responsibilities. (http://72.14.235.132/ search? q=cache:y5TRuVJhBvYJ:www.asic.gov.au/ asic/pdflib.nsf/LookupByFileName/Monash_spch_160702.pdf/%24file/Monash_spch_160702.pdf+Principles+of+good+ACCOUNTING+practice+in+a+company&cd=51&hl=en&ct=clnk&gl=in, viewed on 26th April, 2009) Research Methods & Data Analysis Methodology Research on the topic will be made by referring books and journals, focusing on how accounting practice is maintained as per GAAP in corporate companies as well as small companies. More data will be collected from various web sites providing information about the working nature of the companies. Additionally, questionnaires will be utilized for collecting data and interviews with eminent accounting professionals will be sought to critically analyzing the collected data. The theoretical as well as practical sides of the issue of accounting practice will be taken into account in relation to small companies. Failures of companies which discarded proper accounting and success of companies that offered transparent accounts will be subjected to critical study. The need of a well found accounting practice will be established by scrutinizing the performance of the companies. Information about Basic Financial Statements, Basic Accounting Equation, Professional Designations, GAAP, FASB etc. will be subjected to in-depth study for materializing the research work. Validity & Coherence In drawing up accounting statements, whether they are external "financial accounts" or internally-focused "management accounts", a clear objective is that the accounts fairly reflect the true "substance" of the business and the results of its operation. The theory of accounting has, therefore, developed the concept of a "true and fair view". The true and fair view is applied in ensuring and assessing whether accounts do indeed portray accurately the business activities. To support the application of the "true and fair view", accounting has adopted certain concepts and conventions which help to ensure that accounting information is presented accurately and consistently. These concepts will be elaborated and analysed to show the validity and feasibility of proper accounting practice to make a company successful.( http://tutor2u.net/ business/accounts/accounting_conventions_concepts.htm, viewed on 26th April, 2009) Conclusion The intended research proposal will reveal that for the success of an organization three types of market are desirable. They are the financial market, the customer-product market and the talent market. Good and reliable accounts of a company will enhance the image of the company whether it is small or big and that image will become the bas A good accounting system will help prevent unsuspected surprises and provide knowledge on how to capitalize on opportunities. Many companies run with pencil-and-paper accounting systems, and some use home-grown record-keeping systems that may use a variety of computer programs. The results can be used for the company’s success. a. Inefficient record-keeping, as figures may have to be entered more than once; b. Errors intrude as figures are copied from one set of records to another; c. Information is not up to date, which means that managers and owners may miss out on opportunities, as well as be unaware of problems before they become serious d. It is difficult to produce reports that can help with decision-making. e. New employees must learn the customized solution, instead of being productive immediately on a system they have been trained on before. (Jim Hansen and Jeff Campbell & BDO Dunwoody LLP, http://www.bdo.ca/library/ publications/ tax/taxbulletins/Financial_Statement120407.cfm, viewed on26th April, 2009) The research will also establish that there is a clear distinction between accounting for professional practice and finance accounting. Well practiced financial accounting is vital for the management of a company. Differences between accounting and finance are very clear and in the industry large accounting firms are different from investment banking firms. No organizations will survive without proper marketing and professional accounting.(Boudreau, John W., June 2005, http://www.entrepreneur.com/ tradejournals/article/134575812.html, viewed on 26th April, 2009) Strategic planning and process improvement are most critical for the success of a company. To initiate this success a well defined financial account is the foundation. It means that a Company for being successful should maintain a well defined accounting practice that is in force. If an accounting practice is to be called perfect it must be prepared on the above listed concepts, principles and practices. It has to be filtered and altered so as to suite the present challenging business scenario. It must become theoretically and practically the backbone of a good accounting system. Recommendation Strategic planning and process improvement are the two most critical work activities for management accountants today. Accounting educators must focus more attention on these areas in the preparation of accounting curriculum. It is critical that students acquire the necessary knowledge, skills, and abilities to perform these and other key work activities. Then only these professionals can motivate themselves to give benefits to the company by meeting the objectives of the organization. (John.R. Williams and Craig E Polhemus, American Accounting Association, http://aaahq.org/facdev/teaching/aen/earlyfall99/fd02.htm, viewed on 26th April, 2009) REFERENCES 1. http://ezinearticles.com/?Fundamental-Accounting&id=2229470, 2. http://www.sound-business-practices.com/rationale/company-principles-corporate-ethics.php 3. http://www.aspencbe.org/newsletterar chive/ June08.html 4. http://www.where-people-matter.com/Default.aspx/76 5. (Basic Accounting Principles, Joseph Nicholson, eHow Editor , http://www.ehow.com/about_4691175_basic-accounting-principles.html 6. http://smallbusiness.yahoo.com/r-article-a-1571-m-2-sc-52-what_are_generally_accepted_accounting_principles-i 7. http://72.14.235.132/search?q=cache:y5TRuVJhBvYJ:www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Monash_spch_160702.pdf/%24file/Monash_spch_160702.pdf+Principles+of+good+ACCOUNTING+practice+in+a+company&cd=51&hl=en&ct=clnk&gl=in 8. (Shil, N. C. (2008). Accounting for good corporate 9. governance, JOAAG, Vol. 3. 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