If you need some facts to use in your next writing assignment on cost and management accounting reporting systems, consider the twelve facts below:
- Managerial accounting caters for the requirements of managers to internal reporting and related decision-making. Managers have to plan, organize and control the matters of entity. For this, managerial accounting helps the managers to come to sound business decisions. Management may have their own way dealing with matters internally, but GAAP requirements are to be followed. There is, however, a choice to account for a certain event. For example, either product development cost can be capitalized or it can be deduced from income. Once a choice has been made, it should be the basis of decision for any future reference.
- Well-established information system is needed in case of both financial as well as managerial accounting. Information technology has changed the working methodologies for business entities. Nowadays, accountant’s work is beyond the common book-keeping principles. The quality information system plays a key role in that regard.
- Accounting data is not always absolute in nature. There are certain judgment to be done while reporting any event. Certain accounting treatments require of you to make judgments which are important for business. Along with judgments, estimations are also a part and parcel of the working. Many limitations are there in connection to the estimation of certain event or transaction. Present values of future incomes are calculated to estimate the current financial position of the entity. Provisions require estimations of the cost to be included in expenses and what amount to be charged or written off. Making estimates is a routine activity in connection to financial reporting.
- Two cost methods, historical and fair value are used alternatively. Value of land does not fluctuate much according to accounting estimates, so it follows a historical cost method. In this method, cost related to an event or transaction done in the past. The purchase price of land is accounted for in the financial information of the company.
- A fair value cost method is also applied by entities. Assets are reported in the financial statements at a price which they can fetch in the open market. Valuations are made at regular intervals to come to a standard price prevalent in the open market. The fair market is the price that can be fetched in the open market in the transaction between parties that are not related. Fair value is best suited to assets whose price fluctuates on a regular basis.
- There is no set rule as to the usage of either historical or fair value cost method. Standards provide for illustrations that should be looked into. Best accounting practices are those that are coherent with accounting standards and apply standards prudently. It also depends on the nature of certain events to decide which cost method to go for.
- An accountant has to deal with many complex issues. Relevance related to the fair value cost method and reliability factor of historical cost method is to be traded off. Choice has to be made between the two keeping in mind the standards and normal business practices. An accountant has to be skilled enough to decide on the correct valuation method.
- The job of an accountant is not restricted to a set pattern of methodology. Many areas of specialty are there. Accountants that prefer public accounting provide tax and consultancy services. These services have to be licensed. In the US, each state issues a license to individuals known as CPA, Certified Chartered Accountant. Auditing is the examination of accounts of companies and investigating whether the accounts are in coherence with the rules and regulations set by standards. An auditor concerned with the accounts of a company prepares independent and appropriate report. Tax services provided by an accountant include filling of returns and legal provisions related thereof. Consultancy services do not have a set work plan as these vary according to the requirements of the client.
- Many accountants enjoy private employment in various industries. Various profit and non-profit entities require services of accountants dealing with certain areas of expertise. Accountants hold areas related to costing, budgeting, investment and pricing. Internal auditors are given the responsibility of internal controls, and they work according to the policies defined by managers. These auditors check for relevancy of every account and are responsible for internal controls. Such auditors can enjoy the occupation of tax accountants, managers etc.
- Many accountants work in public sector as well. They serve in public departments in the area of their expertise. Government offices such as SECP, FBI, Internal Revenue Offices and many more take the services of professional accountants.
- Financial information has to be accurate owing to the fact that investors and creditors make decisions to grant loans by looking at the financial information. Reliability and accurateness of financial reports, which forms the basis of ethics of accounting and reporting, are important. Financial reports should depict true and fair view of the scenario and proceedings of the business. Certain code of ethics is to be followed by auditors for both internal and external auditors. Such ethics is to be followed during the process of audit. People intending to pursue the field of accountancy should be able to apply ethics, code of manner and integrity. Accountants are respected, and they are expected to prepare financial reports in accordance with the set rules and procedure defined by accounting bodies.
- Managers have a key role towards the development of the business. They keep an eye on financial information that helps them to make conclusive decisions. Investors are interested to know the dividends, which are, of course, the appropriation and distribution of profits. Shareholders are entitled to dividends, which are mostly declared annually. Creditors look at the financial position of the entity before granting loan. This is to satisfy themselves if the entity would be able to repay the loan or not. This is done by considering the entity’s position in the short run by means of estimation. Analysts, on the other hand, use financial data to make crucial financial decisions. Employees also check the financial information of the company, so that they can have a peace of mind in connection to their job, as profitable company or business can make the career grow. Tax departments need to have access to accurate financial information so that they can tax the company or business accordingly. Financial information caters the requirements of all parties that have an interest in the business.