1.
Stock
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The stock of a corporation is constituted of the equity stock of its owners. A single share of the stock represents fractional ownership of the corporation in proportion to the number of shares. In liquidation, the stock represents the residual assets of the company that would be due to stockholders after discharge of all senior claims such as secured and unsecured debt. Stockholders equity cannot be withdrawn from the company in a way that is intended to be detrimental to the companys creditors, the stock of a corporation is partitioned into shares, the total of which are stated at the time of business formation. Additional shares may subsequently be authorized by the shareholders and issued by the company. In some jurisdictions, each share of stock has a certain declared par value, in other jurisdictions, however, shares of stock may be issued without associated par value. Shares represent a fraction of ownership in a business, a business may declare different types of shares, each having distinctive ownership rules, privileges, or share values. Ownership of shares may be documented by issuance of a stock certificate. A stock certificate is a document that specifies the amount of shares owned by the shareholder. Stock typically takes the form of shares of common stock or preferred stock. As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions, shares of such stock are called convertible preferred shares. New equity issue may have specific legal clauses attached that differentiate them from previous issues of the issuer. Some shares of stock may be issued without the typical voting rights, for instance, or some shares may have special rights unique to them. Often, new issues that have not been registered with a governing body may be restricted from resale for certain periods of time. Preferred stock may be hybrid by having the qualities of bonds of fixed returns and they also have preference in the payment of dividends over common stock and also have been given preference at the time of liquidation over common stock. They have other features of accumulation in dividend, Rule 144 Stock is an American term given to shares of stock subject to SEC Rule 144, Selling Restricted and Control Securities. Under Rule 144, restricted and controlled securities are acquired in unregistered form, investors either purchase or take ownership of these securities through private sales from the issuing company or from an affiliate of the issuer. Investors wishing to sell these securities are subject to different rules than those selling traditional common or preferred stock and these individuals will only be allowed to liquidate their securities after meeting the specific conditions set forth by SEC Rule 144
2.
Accounting
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Accounting or accountancy is the measurement, processing and communication of financial information about economic entities such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494, practitioners of accounting are known as accountants. The terms accounting and financial reporting are often used as synonyms, Accounting can be divided into several fields including financial accounting, management accounting, external auditing, and tax accounting. Accounting information systems are designed to support accounting functions and related activities, Accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statements are audited by accounting firms, and are prepared in accordance with generally accepted accounting principles. GAAP is set by various standard-setting organizations such as the Financial Accounting Standards Board in the United States, as of 2012, all major economies have plans to converge towards or adopt the International Financial Reporting Standards. The history of accounting is thousands of old and can be traced to ancient civilizations. By the time of the Emperor Augustus, the Roman government had access to detailed financial information, double-entry bookkeeping developed in medieval Europe, and accounting split into financial accounting and management accounting with the development of joint-stock companies. The first work on a double-entry bookkeeping system was published in Italy, both the words accounting and accountancy were in use in Great Britain by the mid-1800s, and are derived from the words accompting and accountantship used in the 18th century. In Middle English the verb to account had the form accounten, which was derived from the Old French word aconter, which is in turn related to the Vulgar Latin word computare, meaning to reckon. The base of computare is putare, which meant to prune, to purify, to correct an account, hence, to count or calculate. The word accountant is derived from the French word compter, which is derived from the Italian. Accountancy refers to the occupation or profession of an accountant, particularly in British English, Accounting has several subfields or subject areas, including financial accounting, management accounting, auditing, taxation and accounting information systems. Financial accounting focuses on the reporting of a financial information to external users of the information, such as investors. It calculates and records business transactions and prepares financial statements for the users in accordance with generally accepted accounting principles. GAAP, in turn, arises from the agreement between accounting theory and practice, and change over time to meet the needs of decision-makers. This branch of accounting is also studied as part of the exams for qualifying as an actuary. It is interesting to note that two professionals, accountants and actuaries, have created a culture of being archrivals
3.
Historical cost
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In accounting under the traditional historical cost paradigm, historical cost is the original nominal monetary value of an economic item. Historical cost is based on the measuring unit assumption. In some circumstances, assets and liabilities may be shown at their historical cost, the balance sheet value of the item may therefore differ from the real value. While historical cost is criticised for its inaccuracy, it remains in use in most accounting systems during low, various corrections to historical cost are used, many of which require the use of management judgment and may be difficult to verify. Depreciation affects the value of an asset on the balance sheet. The historical cost will equal the value if there has been no change recorded in the value of the asset since acquisition. Improvements may be added to the cost basis of an asset, Historical cost does not generally reflect current market valuation. Under the historical cost basis of accounting, assets and liabilities are recorded at their values when first acquired and they are not then generally restated for changes in values. Costs recorded in the Income Statement are based on the historical cost of items sold or used, rather than their replacement costs. For example, – a company acquires an asset in year 1 for $100, the asset is held at the end of year 1, when its market value is $120. At the end year 1 the asset is recorded in the sheet at cost of $100. No account is taken of the increase in value from $100 to $120 in year 1, in year 2 the company records a sale of $115. The cost of sales is $100, being the historical cost of the asset and this gives rise to a gain of $15 which is wholly recognized in year 2. It is standard under the historical cost basis to write down the value of inventory to a lower cost and these can include site preparation, delivery and handling costs, installation, assembly, testing, professional fees and the costs of employees directly involved in these activities. In IFRS, cost also includes the initial estimate of the costs of dismantling and removing the item, Cost may include the cost of borrowing to finance construction if this policy is consistently adopted. Cost is then subject to depreciation with to write off the cost of the asset over its useful life down to the recoverable amount. Certain financial instruments may be recorded at historical cost, any initial premium or discount is amortized into interest over time, and so the resulting value is often described as amortized cost. Monetary items such as cash balances, receivables and payables which are denominated in foreign currency are reported using the exchange rate under IFRS
4.
Management accounting
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One simple definition of management accounting is the provision of financial and non-financial decision-making information to managers. Performance management—developing the practice of business decision-making and managing the performance of the organization, risk management—contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization. The Institute of Certified Management Accountants, Management accountants therefore are seen as the value-creators amongst the accountants. They are more concerned with looking and taking decisions that will affect the future of the organization, than in the historical recording. In 2014 CIMA created the Global Management Accounting Principles, the result of research from across 20 countries in five continents, the principles aim to guide best practice in the discipline. Focus, Financial accounting focuses on the company as a whole, Management accounting provides detailed and disagregated information about products, individual activities, divisions, plants, operations and tasks. Traditional approaches limit themselves by defining cost behavior only in terms of production or sales volume, in 1993, the Accounting Education Change Commission Statement Number 4 calls for faculty members to expand their knowledge about the actual practice of accounting in the workplace. Variance analysis is an approach to the comparison of the actual and budgeted costs of the raw materials. Other approach that can be viewed as innovative to the U. S. is the German approach, one of the more innovative accounting practices available today is resource consumption accounting. Consistent with other roles in corporations, management accountants have a dual reporting relationship. A function of management accounting in such organizations is to work closely with the IT department to provide IT cost transparency, given the above, one view of the progression of the accounting and finance career path is that financial accounting is a stepping stone to management accounting. Consistent with the notion of creation, management accountants help drive the success of the business while strict financial accounting is more of a compliance. Activity-based costing was first clearly defined in 1987 by Robert S. Kaplan and W. Bruns as a chapter in their book Accounting and Management, A Field Study Perspective. For example, increased automation has reduced labor, which is a direct cost, but has increased depreciation, the term Grenzplankostenrechnung, often referred to as GPK, has best been translated as either marginal planned cost accounting or flexible analytic cost planning and accounting. GPK is published in cost accounting textbooks, notably Flexible Plankostenrechnung und Deckungsbeitragsrechnung, in the mid- to late-1990s several books were written about accounting in the lean enterprise. The term lean accounting was coined during that period and these books contest that traditional accounting methods are better suited for mass production and do not support or measure good business practices in just-in-time manufacturing and services. The movement reached a point during the 2005 Lean Accounting Summit in Dearborn, Michigan. 320 individuals attended and discussed the advantages of a new approach to accounting in the lean enterprise,520 individuals attended the 2nd annual conference in 2006 and it has varied between 250 and 600 attendees since that time
5.
Tax accounting in the United States
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U. S. tax accounting refers to accounting for tax purposes in the United States. The Internal Revenue Code governs the application of tax accounting, section 446 sets the basic rules for tax accounting. Tax accounting under section 446 emphasizes consistency for a tax accounting method with references to the financial accounting to determine the proper method. So the taxpayer must choose a tax accounting method using their financial accounting method as a reference point, proper accounting methods are found in section 446 to which permits cash, accrual, and other methods approved by the IRS including combinations. If the taxpayer engages in more than one then it may use a different method for each business according to section 446. If the taxpayer wants to change their tax accounting method, section 446 requires the taxpayer to acquire the consent of the Secretary of the Treasury, there are two kinds of changes, one where you must receive a letter of approval from the Secretary of the Treasury. Another type of change comes from a series of more routine changes each of which is an automatic change, to get the automatic change the taxpayer must fill out a form and return it to the Secretary of the Treasury. The taxpayer can adopt another method if the files a tax return using that method for two consecutive years. If the taxpayer wants to return to the method the taxpayer must ask for permission from the Secretary following the 446 procedure. If the taxpayer fails to request a change of method of accounting then according to section 446 the taxpayer does so at their own peril by exposure to penalties. In many other countries, the profit for tax purposes is the accounting profit defined by GAAP, in other words, GAAP determines the taxable profits except where a tax rule determines otherwise. Such adjustments typically include depreciation and expenses which for policy reasons are not deductible for tax purposes, such as entertaining costs, but the U. S. is not the only jurisdiction in which there is a wide divergence between tax and financial accounting. Ifferences between tax and commercial accounting rules arise where the tax instrument is employed to pursue economic, social and cultural purposes, write Ault, Accounting Financial accounting Accounting period All-events test Corporate tax in the United States CPA Magazine
6.
Audit
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It also attempts to ensure that the books of accounts are properly maintained by the concern as required by law. Auditing has become such a phenomenon in the corporate and the public sector that academics started identifying an Audit Society. Any subject matter may be audited, Audits provide third party assurance to various stakeholders that the subject matter is free from material misstatement. The term is most frequently applied to audits of the information relating to a legal person. Other areas which are commonly audited include, secretarial & compliance audit, internal controls, quality management, project management, water management, and energy conservation. As a result of an audit, stakeholders may effectively evaluate and improve the effectiveness of management, control. The word audit is derived from a Latin word audire which means to hear, an information technology audit, or information systems audit, is an examination of the management controls within an Information technology infrastructure. These reviews may be performed in conjunction with a financial statement audit, internal audit, due to strong incentives to misstate financial information, auditing has become a legal requirement for many entities who have the power to exploit financial information for personal gain. Traditionally, audits were mainly associated with gaining information about financial systems, financial audits are performed to ascertain the validity and reliability of information, as well as to provide an assessment of a systems internal control. As a result of this, a party can express an opinion of the person / organisation / system in question. The opinion given on financial statements will depends on the evidence obtained. Due to constraints, an audit seeks to provide reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits, but recently, the argument that auditing should go beyond just true and fair is gaining momentum. And the US Public Company Accounting Oversight Board has come out with a release on the same. Cost accounting is a process for verifying the cost of manufacturing or producing of any article, on the basis of measuring the use of material. In simple words, the term, cost audit means a systematic and accurate verification of the cost accounts and records, in most nations, an audit must adhere to generally accepted standards established by governing bodies. There are also new types of integrated auditing becoming available that use unified compliance material and this is a very new but necessary approach in some sectors to ensure that all the necessary governance requirements can be met without duplicating effort from both audit and audit hosting resources. The purpose of an assessment is to something or calculate a value for it
7.
Budget
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A budget is a quantitative expression of a financial plan for a defined period of time. It may include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and it expresses strategic plans of business units, organizations, activities or events in measurable terms. A budget is the sum of money allocated for a particular purpose, a budget is a quantified financial plan for a forthcoming accounting period. A budget is an important concept in microeconomics, which uses a line to illustrate the trade-offs between two or more goods. In other terms, a budget is an organizational plan stated in monetary terms and it also helps to co-ordinate the activities of the organization by compelling managers to examine relationships between their own operation and those of other departments. Other essentials of budget include, To control resources To communicate plans to various responsibility center managers, to motivate managers to strive to achieve budget goals. Tools enable the actual operation of the business to be measured against the forecast. Lastly, tools establish the cost constraint for a project, program, on the other hand, if the figures diverge wildly from the budget, this sends an out of control signal, and the share price could suffer. Campaign planners incur two types of cost in any campaign, the first is the cost of human resource necessary to plan, the second type of expense that campaign planners incur is the hard cost of the campaign itself. A budget is a tool for an event director to predict with a reasonable accuracy whether the event will result in a profit. A budget can also be used as a pricing tool, there are two basic approaches or philosophies, when it comes to budgeting. One approach is telling you on mathematical models, and the other on people, the first school of thought believes that financial models, if properly constructed, can be used to predict the future. The focus is on variables, inputs and outputs, drivers, investments of time and money are devoted to perfecting these models, which are typically held in some type of financial spreadsheet application. The other school of thought holds that it’s not about models, no matter how sophisticated models can get, the best information comes from the people in the business. The focus is therefore in engaging the managers in the more fully in the budget process. The companies that adhere to this approach have their managers develop their own budgets, while many companies would say that they do both, in reality the investment of time and money falls squarely in one approach or the other. The budget of a government is a summary or plan of the revenues and expenditures of that government. There are three types of government budget, the operating or current budget, the capital or investment budget, the budget is prepared by the Treasury team led by the Chancellor of the Exchequer and is presented to Parliament by the Chancellor of the Exchequer on Budget Day
8.
Cost accounting
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Cost accounting is a process of collecting, recording, classifying, analyzing, summarizing, allocating and evaluating various alternative courses of action & control of costs. Its goal is to advise the management on the most appropriate course of action based on the cost efficiency, Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future. Since managers are making decisions only for their own organization, there is no need for the information to be comparable to similar information from other organizations, instead, information must be relevant for a particular environment. Cost accounting information is used in financial accounting information. As a result, there is variety in the cost accounting systems of the different companies and sometimes even in different parts of the same company or organization. All types of businesses, whether service, manufacturing or trading, Cost accounting has long been used to help managers understand the costs of running a business. In the early age, most of the costs incurred by a business were what modern accountants call variable costs because they varied directly with the amount of production. Money was spent on labor, raw materials, power to run a factory, managers could simply total the variable costs for a product and use this as a rough guide for decision-making processes. Some costs tend to remain the same even during busy periods, unlike variable costs, over time, these fixed costs have become more important to managers. In the early century, these costs were of little importance to most businesses. Managers must understand fixed costs in order to make decisions about products, for example, A company produced railway coaches and had only one product. To make each coach, the company needed to purchase $60 of raw materials and components, therefore, total variable cost for each coach was $300. Knowing that making a coach required spending $300, managers knew they couldnt sell below that price without losing money on each coach, any price above $300 became a contribution to the fixed costs of the company. Financial accounting aims at finding out results of accounting year in the form of Profit and Loss Account, Cost Accounting aims at computing cost of production/service in a scientific manner and facilitate cost control and cost reduction. Financial accounting reports the results and position of business to government, creditors, investors, Cost Accounting is an internal reporting system for an organization’s own management for decision making. In financial accounting, cost classification is based on type of transactions, e. g. salaries, repairs, insurance, stores etc. In cost accounting, classification is basically on the basis of functions, activities, products, process and on internal planning and control and information needs of the organization. Financial accounting aims at presenting ‘true and fair’ view of transactions, profit and loss for a period and it aims at computing ‘true and fair’ view of the cost of production/services offered by the firm
9.
Forensic accounting
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Forensic accounting, forensic accountancy or financial forensics is the specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or litigation. The work performed and reports issued will often provide answers to the how, where, what, why, Forensic means suitable for use in a court of law, and it is to that standard and potential outcome that forensic accountants generally have to work. Forensic accountants, also referred to as forensic auditors or investigative auditors, all of the larger accounting firms, as well as many medium-sized and boutique firms and various police and government agencies have specialist forensic accounting departments. Financial forensic engagements may fall into several categories, Forensic accountants often assist in professional negligence claims where they are assessing and commenting on the work of other professionals. Forensic accountants are also engaged in marital and family law of analyzing lifestyle for spousal support purposes, determining income available for child support, engagements relating to criminal matters typically arise in the aftermath of fraud. They frequently involve the assessment of accounting systems and accounts presentation—in essence assessing if the numbers reflect reality, some forensic accountants specialize in forensic analytics which is the procurement and analysis of electronic data to reconstruct, detect, or otherwise support a claim of financial fraud. The main steps in forensic analytics are data collection, data preparation, data analysis, for example, forensic analytics may be used to review an employees purchasing card activity to assess whether any of the purchases were diverted or divertible for personal use. In the United Kingdom, relevant legislation is contained in the Proceeds of Crime Act 2002, in India there is a separate breed of forensic accountants called Certified Forensic Accounting Professionals. Forensic accountants may be involved in litigation support and investigative accounting. The American Board of Forensic Accounting was established in 1993, for more information please visit http, //abfa. us/ For effective learning, professionals will need expert training in the practices of forensic accounting. The American Board of Forensic Accounting offers the Forensic Accounting Review, http, //abfa. us/far/ The CRFAC is a valuable credential and covers the broad base of forensic accounting knowledge. Http, //abfa. us/resources/ The American Board of Forensic Accounting offers many programs, FACB plays several roles and one the roles is standardization of the examination and certification of forensic auditors globally. All certification is renewed on an annual basis, apart from practitioners certification, FACB is an oversight body which accredits prospective member organization before admission as part of quality checks. Persons with the FACB credential can practice as forensic auditors on a global scale, large accounting firms often have a forensic accounting department. Forensic accounting and fraud investigation methodologies are different than internal auditing, thus forensic accounting services and practice should be handled by forensic accounting experts, not by internal auditing experts. That is necessary if the fraud comes to trial, the jury will be made up of ordinary laypersons. On the other hand, internal auditors move on checklists that may not surface the evidence that the jury or regulatory bodies look for, the fieldwork may carry out legal risks if internal auditing checklists are employed instead asking to a forensic accountant and may result serious consultant malpractice risks
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