An accountant is a practitioner of accounting or accountancy, the measurement, disclosure or provision of assurance about financial information that helps managers, tax authorities and others make decisions about allocating resource. In many jurisdictions, professional accounting bodies maintain standards of practice and evaluations for professionals. Accountants who have demonstrated competency through their professional associations' certification exams are certified to use titles such as Chartered Accountant, Chartered Certified Accountant or Certified Public Accountant; such professionals are granted certain responsibilities by statute, such as the ability to certify an organization's financial statements, may be held liable for professional misconduct. Non-qualified accountants may be employed by a qualified accountant, or may work independently without statutory privileges and obligations. Cahan & Sun used archival study to find out that accountants’ personal characteristics may exert a significant impact during the audit process and further influence audit fees and audit quality.
The Big Four auditors are the largest employers of accountants worldwide. However, most accountants are employed in commerce and the public sector. In the Commonwealth of Nations, which include the United Kingdom, Australia, New Zealand, Hong Kong pre-1997, several other states recognised accounting qualifications are Chartered Certified Accountant, Chartered Accountant, Chartered Management Accountant and International Accountant. Other qualifications in particular countries include Certified Public Accountant, Chartered Professional Accountant, Certified Management Accountant, Certified Practising Accountant and members of the Institute of Public Accountants, Certified Public Practising Accountant; the Institute of Chartered Accountants of Scotland received its Royal Charter in 1854 and is the world's first professional body of accountants. A Chartered Accountant must be a member of one of the following: the Institute of Chartered Accountants in England and Wales the Institute of Chartered Accountants of Scotland Chartered Accountants Ireland a recognised equivalent body from another Commonwealth country A Chartered Certified Accountant must be a member of the Association of Chartered Certified Accountants.
A Chartered Management Accountant must be a member of the Chartered Institute of Management Accountants. A Chartered Public Finance Accountant must be a member of the Chartered Institute of Public Finance and Accountancy. An International Accountant is a member of the Association of International Accountants. An Incorporated Financial Accountant is a member of the Institute of Financial Accountants. A Certified Public Accountant may be a member of the Association of Certified Public Accountants or its equivalent in another country, is designated as such after passing the Uniform Certified Public Accountant Examination. A Public Accountant may be a member of the Institute of Public Accountants. Registered Qualified Accountant may be a member of Accountants Institute, based in SloveniaExcepting the Association of Certified Public Accountants, each of the above bodies admits members only after passing examinations and undergoing a period of relevant work experience. Once admitted, members are expected to comply with ethical guidelines and gain appropriate professional experience.
Chartered, Chartered Certified, Chartered Public Finance, International Accountants engaging in practice must gain a "practising certificate" by meeting further requirements such as purchasing adequate insurance and undergoing inspections. The ICAEW, ICAS, ICAI, ACCA and AAPA are five Recognised Supervisory Bodies in the UK. A member of one of them may become a Statutory Auditor in accordance with the Companies Act, providing they can demonstrate the necessary professional ability in that area and submit to regular inspection, it is illegal for any individual or firm, not a Statutory Auditor to perform a company audit. The ICAEW, ICAS, ICAI, ACCA, AIA and CIPFA are six recognised qualifying bodies statutory in the UK. A member of one of them may become a Statutory Auditor in accordance with the Companies Act, providing they are a member of one of the five Recognised Supervisory Bodies RSB mentioned above. All six RQBs are listed under EU mutual recognition directives to practise in 27 EU member states and individually entered into agreement with the Hong Kong Institute of Certified Public Accountants.
Further restrictions apply to accountants. In addition to the bodies above, technical qualifications are offered by the Association of Accounting Technicians, ACCA and AIA, which are called AAT Technician, CAT and IAT. In Australia, there are three recognised local professional accounting bodies which all enjoy the same recognition and can be considered as "qualified accountant": the Institute of Public Accountants, CPA Australia and the Chartered Accountants Australia and New Zealand
Accounting or accountancy is the measurement 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. Accounting, called the "language of business", measures the results of an organization's economic activities and conveys this information to a variety of users, including investors, creditors and regulators. Practitioners of accounting are known as accountants; the terms "accounting" and "financial reporting" are used as synonyms. Accounting can be divided into several fields including financial accounting, management accounting, external auditing, tax accounting and cost accounting. Accounting information systems are designed to support related activities. Financial accounting focuses on the reporting of an organization's financial information, including the preparation of financial statements, to the external users of the information, such as investors and suppliers.
The recording of financial transactions, so that summaries of the financials may be presented in financial reports, is known as bookkeeping, of which double-entry bookkeeping is the most common system. Accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statements are audited by accounting firms, are prepared in accordance with accepted accounting principles. GAAP is set by various standard-setting organizations such as the Financial Accounting Standards Board in the United States and the Financial Reporting Council in the United Kingdom; 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 years old and can be traced to ancient civilizations; the early development of accounting dates back to ancient Mesopotamia, is related to developments in writing and money. By the time of Emperor Augustus, the Roman government had access to detailed financial information.
Double-entry bookkeeping was pioneered in the Jewish community of the early-medieval Middle East and was further refined in medieval Europe. With the development of joint-stock companies, accounting split into financial accounting and management accounting; the first work on a double-entry bookkeeping system was published by Luca Pacioli. Accounting began to transition into an organized profession in the nineteenth century, with local professional bodies in England merging to form the Institute of Chartered Accountants in England and Wales in 1880. Both the words accounting and accountancy were in use in Great Britain by the mid-1800s, are derived from the words accompting and accountantship used in the 18th century. In Middle English the verb "to account" had the form accounten, derived from the Old French word aconter, in turn related to the Vulgar Latin word computare, meaning "to reckon"; the base of computare is putare, which "variously meant to prune, to purify, to correct an account, hence, to count or calculate, as well as to think."The word "accountant" is derived from the French word compter, derived from the Italian and Latin word computare.
The word was written in English as "accomptant", but in process of time the word, always pronounced by dropping the "p", became changed both in pronunciation and in orthography to its present form. Accounting has variously been defined as the keeping or preparation of the financial records of an entity, the analysis and reporting of such records and "the principles and procedures of accounting". Accountancy refers to the occupation or profession of an accountant in British English. Accounting has several subfields or subject areas, including financial accounting, management accounting, auditing and accounting information systems. Financial accounting focuses on the reporting of an organization's financial information to external users of the information, such as investors, potential investors and creditors, it calculates and records business transactions and prepares financial statements for the external users in accordance with accepted accounting principles. GAAP, in turn, arises from the wide agreement between accounting theory and practice, change over time to meet the needs of decision-makers.
Financial accounting produces past-oriented reports—for example the financial statements prepared in 2006 reports on performance in 2005—on an annual or quarterly basis about the organization as a whole. This branch of accounting is studied as part of the board exams for qualifying as an actuary; these two types of professionals and actuaries, have created a culture of being archrivals. Management accounting focuses on the measurement and reporting of information that can help managers in making decisions to fulfill the goals of an organization. In management accounting, internal measures and reports are based on cost-benefit analysis, are not required to follow the accepted accounting principle. 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 d
Financial statements are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form, easy to understand, they include four basic financial statements accompanied by a management discussion and analysis: A balance sheet or statement of financial position, reports on a company's assets and owners equity at a given point in time. An income statement—or profit and loss report, or statement of comprehensive income, or statement of revenue & expense—reports on a company's income and profits over a stated period of time. A profit and loss statement provides information on the operation of the enterprise; these include the various expenses incurred during the stated period. A statement of changes in equity or equity statement, or statement of retained earnings, reports on the changes in equity of the company over a stated period of time. A cash flow statement reports on a company's cash flow activities its operating and financing activities over a stated period of time.
For large corporations, these statements may be complex and may include an extensive set of footnotes to the financial statements and management discussion and analysis. The notes describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financial statements. "The objective of financial statements is to provide information about the financial position and changes in financial position of an enterprise, useful to a wide range of users in making economic decisions." Financial statements should be understandable, relevant and comparable. Reported assets, equity and expenses are directly related to an organization's financial position. Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently." Financial statements may be used by users for different purposes: Owners and managers require financial statements to make important business decisions that affect its continued operations.
Financial analysis is performed on these statements to provide management with a more detailed understanding of the figures. These statements are used as part of management's annual report to the stockholders. Employees need these reports in making collective bargaining agreements with the management, in the case of labor unions or for individuals in discussing their compensation and rankings. Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analyses are used by investors and are prepared by professionals, thus providing them with the basis for making investment decisions. Financial institutions use them to decide whether to grant a company with fresh working capital or extend debt securities to finance expansion and other significant expenditures. Consolidated financial statements are defined as "Financial statements of a group in which the assets, equity, income and cash flows of the parent and its subsidiaries are presented as those of a single economic entity", according to International Accounting Standard 27 "Consolidated and separate financial statements", International Financial Reporting Standard 10 "Consolidated financial statements".
The rules for the recording and presentation of government financial statements may be different from those required for business and for non-profit organizations. They may use either of two accounting methods: accrual accounting, or cost accounting, or a combination of the two. A complete set of chart of accounts is used, different from the chart of a profit-oriented business. Personal financial statements may be required from persons applying for a personal loan or financial aid. A personal financial statement consists of a single form for reporting held assets and liabilities, or personal sources of income and expenses, or both; the form to be filled out is determined by the organization supplying the aid. Although laws differ from country to country, an audit of the financial statements of a public company is required for investment and tax purposes; these are performed by independent accountants or auditing firms. Results of the audit are summarized in an audit report that either provide an unqualified opinion on the financial statements or qualifications as to its fairness and accuracy.
The audit opinion on the financial statements is included in the annual report. There has been much legal debate over. Since audit reports tend to be addressed to the current shareholders, it is thought that they owe a legal duty of care to them, but this may not be the case as determined by common law precedent. In Canada, auditors are liable only to investors using a prospectus to buy shares in the primary market. In the United Kingdom, they have been held liable to potential investors when the auditor was aware of the potential investor and how they would use the information in the financial statements. Nowadays auditors tend to include in their report liability restrict
An income statement or profit and loss account is one of the financial statements of a company and shows the company’s revenues and expenses during a particular period. It indicates how the revenues are transformed into the net income or net profit (the result after all revenues and expenses have been accounted for; the purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. An income statement represents a period of time; this contrasts with the balance sheet. Charitable organizations that are required to publish financial statements do not produce an income statement. Instead, they produce a similar statement that reflects funding sources compared against program expenses, administrative costs, other operating commitments; this statement is referred to as the statement of activities. Revenues and expenses are further categorized in the statement of activities by the donor restrictions on the funds received and expended.
The income statement can be prepared in one of two methods. The Single Step income statement totals subtracts expenses to find the bottom line; the Multi-Step income statement takes several steps to find the bottom line: starting with the gross profit calculating operating expenses. When deducted from the gross profit, yields income from operations. Adding to income from operations is the difference of other revenues and other expenses; when combined with income from operations, this yields income before taxes. The final step is to deduct taxes, which produces the net income for the period measured. Income statements may help investors and creditors determine the past financial performance of the enterprise, predict the future performance, assess the capability of generating future cash flows using the report of income and expenses. However, information of an income statement has several limitations: Items that might be relevant but cannot be reliably measured are not reported; some numbers depend on accounting methods used.
Some numbers depend on estimates. - INCOME STATEMENT GREENHARBOR LLC - For the year ended DECEMBER 31 2010 € € Debit Credit Revenues GROSS REVENUES 296,397 -------- Expenses: ADVERTISING 6,300 BANK & CREDIT CARD FEES 144 BOOKKEEPING 2,350 SUBCONTRACTORS 88,000 ENTERTAINMENT 5,550 INSURANCE 750 LEGAL & PROFESSIONAL SERVICES 1,575 LICENSES 632 PRINTING, POSTAGE & STATIONERY 320 RENT 13,000 MATERIALS 74,400 TELEPHONE 1,000 UTILITIES 1,491 -------- TOTAL EXPENSES -------- NET INCOME 100,885 Guidelines for statements of comprehensive income and income statements of business entities are formulated by the International Accounting Standards Board and numerous country-specific organizations, for example the FASB in the U. S.. Names and usage of different accounts in the income statement depend on the type of organization, industry practices and the requirements of different jurisdictions. If applicable to the business, summary values for the following items should be included in the income statement: Revenue - Cash inflows or other enhancements of assets of an entity during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major operations.
It is presented as sales minus sales discounts and allowances. Every time a business sells a product or performs a service, it obtains revenue; this is referred to as gross revenue or sales revenue. Expenses - Cash outflows or other using-up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations. Cost of Goods Sold / Cost of Sales - represents the direct costs attributable to goods produced and sold by a business, it includes material costs, direct labour, overhead costs, excludes operating costs such as selling, advertising or R&D, etc. Selling and Administrative expenses - consist of the combined payroll costs. SGA is understood as a major portion of non-production related costs, in contrast to production costs such as direct labour. Selling expenses - represent expenses needed to sell products (e.g. salaries of sales people and travel expenses, freight, depreciation of sales store buildings and equi
Liability (financial accounting)
In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. A liability is defined by the following characteristics: Any type of borrowing from persons or banks for improving a business or personal income, payable during short or long time. An equitable obligation is a duty based on moral considerations. A constructive obligation is an obligation, implied by a set of circumstances in a particular situation, as opposed to a contractually based obligation; the accounting equation relates assets and owner's equity: Assets = Liabilities + Owner's Equity The accounting equation is the mathematical structure of the balance sheet. The most accepted accounting definition of liability is the one used by the International Accounting Standards Board.
The following is a quotation from IFRS Framework: A liability is a present obligation of the enterprise arising from past events, the settlement of, expected to result in an outflow from the enterprise of resources embodying economic benefits Regulations as to the recognition of liabilities are different all over the world, but are similar to those of the IASB. Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU. Liabilities are debts and obligations of the business they represent as creditor's claim on business assets. Liabilities are reported on a balance sheet and are divided into two categories: Current liabilities — these liabilities are reasonably expected to be liquidated within a year, they include payables such as wages, accounts and accounts payable, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, short-term obligations. Long-term liabilities — these liabilities are reasonably expected not to be liquidated within a year.
They include issued long-term bonds, notes payables, long-term leases, pension obligations, long-term product warranties. Liabilities of uncertain value or timing are called provisions; when a company deposits cash with a bank, the bank records a liability on its balance sheet, representing the obligation to repay the depositor on demand. In accordance with the double-entry principle, the bank records the cash, itself, as an asset; the company, on the other hand, upon depositing the cash with the bank, records a decrease in its cash and a corresponding increase in its bank deposits. A debit either decreases a liability. According to the principle of double-entry, every financial transaction corresponds to both a debit and a credit; when cash is deposited in a bank, the bank is said to "debit" its cash account, on the asset side, "credit" its deposits account, on the liabilities side. In this case, the bank is debiting an asset and crediting a liability, which means that both increase; when cash is withdrawn from a bank, the opposite happens: the bank "credits" its cash account and "debits" its deposits account.
In this case, the bank is crediting an asset and debiting a liability, which means that both decrease. Contingent liability Assets Financial Accounting
A value-added tax, known in some countries as a goods and services tax, is a type of tax, assessed incrementally, based on the increase in value of a product or service at each stage of production or distribution. VAT compensates for the shared services and infrastructure provided in a certain locality by a state and funded by its taxpayers that were used in the elaboration of that product or service. Not all localities require VAT to be charged and goods and services for export may be exempted. VAT is implemented as a destination-based tax, where the tax rate is based on the location of the consumer and applied to the sales price. Confusingly, the terms VAT, GST, consumption tax and sales tax are sometimes used interchangeably. VAT raises about a fifth of total tax revenues both worldwide and among the members of the Organisation for Economic Co-operation and Development; as of 2018, 166 of the 193 countries with full UN membership employ a VAT, including all OECD members except the United States, which uses a sales tax system instead.
There are two main methods of calculating VAT: the credit-invoice or invoice-based method, the subtraction or accounts-based method. Using the credit-invoice method, sales transactions are taxed, with the customer informed of the VAT on the transaction, businesses may receive a credit for VAT paid on input materials and services; the credit-invoice method is the most employed method, used by all national VATs except for Japan. Using the subtraction method, at the end of a reporting period, a business calculates the value of all taxable sales subtracts the sum of all taxable purchases and the VAT rate is applied to the difference; the subtraction method VAT is only used by Japan, although subtraction method VATs using the name "flat tax", have been part of many recent tax reform proposals by US politicians. With both methods, there are exceptions in the calculation method for certain goods and transactions, created for either pragmatic collection reasons or to counter tax fraud and evasion. Germany and France were the first countries to implement VAT, doing so in the form of a general consumption tax during World War I.
The modern variation of VAT was first implemented by France in 1954 in Ivory Coast colony. Recognizing the experiment as successful, the French introduced it in 1958. Maurice Lauré, Joint Director of the France Tax Authority, the Direction Générale des Impôts implemented the VAT on 10 April 1954, although German industrialist Dr. Wilhelm von Siemens proposed the concept in 1918. Directed at large businesses, it was extended over time to include all business sectors. In France, it is the most important source of state finance, accounting for nearly 50% of state revenues. A 2017 study found that the adoption of VAT is linked to countries with corporatist institutions; the amount of VAT is decided by the state as percentage of the end-market price. As its name suggests, value-added tax is designed to tax only the value added by a business on top of the services and goods it can purchase from the market. To understand what this means, consider a production process where products get successively more valuable at each stage of the process.
When an end-consumer makes a purchase, they are not only paying for the VAT for the product at hand, but in effect, the VAT for the entire production process, since VAT is always included in the prices. The value-added effect is achieved by prohibiting end-consumers from recovering VAT on purchases, but permitting businesses to do so; the VAT collected by the state is computed as the difference between the VAT of sales earnings and the VAT of those goods and services upon which the product depends. The difference is the tax due to the value added by the business. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction; the standard way to implement a value-added tax involves assuming a business owes some fraction on the price of the product minus all taxes paid on the good. By the method of collection, VAT can be invoice-based. Under the invoice method of collection, each seller charges VAT rate on his output and passes the buyer a special invoice that indicates the amount of tax charged.
Buyers who are subject to VAT on their own sales consider the tax on the purchase invoices as input tax and can deduct the sum from their own VAT liability. The difference between output tax and input tax is paid to the government. Under the accounts based method, no such specific invoices are used. Instead, the tax is calculated on the value added, measured as a difference between revenues and allowable purchases. Most countries today use the invoice method, the only exception being Japan, which uses the accounts method. By the timing of collection, VAT can be either cash based. Cash basis accounting is a simple form of accounting; when a payment is received for the sale of goods or services, a deposit is made, the revenue is recorded as of the date of the receipt of funds—no matter when the sale had been made. Cheques are written when funds are available to pay bills, the expense is recorded as of the cheque date—regardless of when the expense had been incurred; the primary focus is on the amount of cash in the bank, the secondary focus is on making sure all bills are paid.
Little effort is made to match revenues to the time period in which they are earned, or to match expenses to the time period in which they are incurr