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Principles of Accounting and Finance
Accounting involves the systematic keeping of records, reports, classification, and analysis of business transactions and money. The process enables the company to know its financial position and performance in terms of its net profit. Accountants are persons known to be responsible for accounting. These individuals are required to adhere to the set rules and regulations given by the Accepted Accounting Principles. Accountants also perform finance activities affecting the operation of the business. These activities include weighing the cost associated with new adventures, follow up of financial performance, and ensuring quality in management. In addition, there is participation in merging and acquisition processes in the firm and ensuring that the strategies used for taxation are followed. Although accounting requirements differ, organizations ensure easier traceability of the flow of funds.
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The accounting code of ethics binds professional accountants in their daily accounting and financial activities (Brodersen, & Pysh, 2014). A professional member of the International Federation of Accountants’ (IFAC) body expects the accountants to possess ethical standards. It is the International Ethics Standards Board for Accountants that establishes such standards. Below are the primary principles that direct professional accountants in practicing their expertise.
It is the responsibility of every employee, especially those practicing accounting, to be honest, and straightforward. The feature represents that of a professional carrying out the duties of the firm. In addition, it is necessary that they are people of integrity, fairness, and truthfulness to their potential customers.
Prejudice and conflicting interests are not allowed among employees in the accounting department. This is especially when they are conducting their professional assignments. If this is ensured, then not any of the business tasks and duties are compromised at all.
Professional Competence and Due Care
Accounting professionals are required to possess the needed knowledge and expertise. The move is essential when they are handling any issue from their customers. Additionally, these individuals are expected to act carefully and meticulously, according to the required professional standards.
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Members should keep confidential information acquired in their professional and business-related activities (Carmichael, Whittington, & Graham, 2012). They should not disclose this information to a third party without the consent of the involved parties. This information should not also be used for the personal advantage of members.
It is a requirement that accountants focus on their professional character whenever they are dealing with the firm’s activities. Accountants are characterized by many cases of fraud or embezzlement of the company’s funds. For this reason, they should adhere to the laws and regulations without any issues. Customers are fragile individuals that should be handled with courtesy and competence.
Roles of Accounting and Finance
To make great success and progress in the business an individual needs to be watchful and make serial reporting budgetary to the stakeholders. Financial information is the essential thing that catches the interested parties, which usually require this financial information. The interested parties include creditors, customers, and investors. Accounting for business finances indicates the number of operating costs, that the owner is indebted to his or her customers and suppliers, payroll costs, and the actual cash he or she has at that particular time. If financial information is unreliable, the bank may refuse to rely on that owner’s records thus making it difficult if he or she wants to secure for his or her business. Financial accounting can also enable the owner to evaluate the essential characteristics of the business for the entire month.
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The role of accounting is to aid in decision-making in all levels of the organization. Furthermore, there is a need to have efficient decision-making skills through the aid of accounting. The accounting process entails evaluating and summarizing business transactions, analyzing financial material, and communicating results to the management and those participating in making decisions (Loughran, 2011). With the help of such information, the management can design the best strategies and policies for the firm.
Financial accounting provides the needed information on the financial positions of a particular business. Additionally, this financial information is for varied periods. The income statement provides such information that is vital for checking the progress of a firm. On the other hand, the balance sheet offers business assets and liabilities for a specific financial year. The managers can set out prospects about their future expenditures. With this in mind, many challenges associated with poor financial record keeping are eliminated. Without these financial documents, it would be very difficult to run a business or to make decisions regarding the business. Presentation of profits and expenses against sales and budgets facilitates reports to be modified to the particular needs of the business.
Accounting in a firm has developed in two principal directions. First, it is to ensure that information required by external stakeholders is available. Second, it aids in the provision of the required information to the management to help them make quality decisions. The statement of financial position, income statement, and cash flow are but a few of the essential accounting statements used. The income statement illustrates the number of funds received by the company for transactions either with customers or other businesses. It is used to show the profit and losses made by the business to the shareholders and managers. A balance sheet shows the company’s tangible assets and liabilities. It also provides an overview of the company’s assets that are intangible like the name brand, license of operation, and the company’s logos. This information is paramount and should be properly maintained because it shows what is unsettled at any given period. Cash flow statements show the spending of the company’s funds.
It also shows the money that the company is owed but has not yet received. Investors play a vital role in the progress of the business. However, before they agree to any contract, they first check the financial reports of the specific company. This is crucial because it offers a glimpse of the company’s financial status. After checking all these, the investor can finally decide whether to invest or not. It is also used to assess a company’s capabilities in terms of its growth and loss (Maynard, 2013). A company can track the flow of returns and losses for previous years. Accounting can be used to measure the consequences of corporation’s trends and assess whether the impact is negative or positive. The manager’s yearly report assists to establish some of the factors that have affected financial statements. The solution is provided on what can be done to keep away from potentially dangerous financial measures in the future. During auditing, these reports help the company to compare events of financial information in the past. Financial reports are also used to determine the price of each share and expected to sell prices in the future that will generate profit for the company.
Conflict of interests in accounting and financial reporting
Conflict of interest has become a crisis in the financial system. This conflict has led to a reduction in the reliability of the information because of the spread of misleading information. The decline of information that is reliable has made it difficult for the financial system to solve problems, hence slow down credit parties with profitable investment opportunities.
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It has led to a decrease in the value of information in financial markets. The funds are therefore not channeled to productive opportunities. This leads to the economy to become inefficient. The increase in economies of scope and scale has also led to financial firms to deliver multiple services under one roof. This will increase the conflict of interests, which leads to a rise in unethical behavior. Auditors will be threatened by clients to take their accounting and management services to a different accounting firm, leading to biased audit reports. They also provide minimal reliable information to investors. Auditors provide an excessively favorable audit in an effort to retain audit business.
Accountants should be independent in their line of duty giving out facts. They should provide audit and accounting services to the public with independency. They should provide assurance services to their clients. Conflicts of interests prevent them from giving investment advisory services. The independence of accountants can be impaired if they make investment decisions on behalf of their audit clients or even execute a deal to buy or sell audit customer investment.
Accounting and finance are important for running any business. It is also concerned with keeping records and is able to provide to the people who run the firm and the interested parties (Weil, Schipper, & Francis, 2014).
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An organization can survive with poor human resource management, inefficient marketing plan, and strategies that are poorly designed. However, if financial management fails, it leads to serious faults of the system. Maintaining good accounting and financial records assists in keeping the business under control. This will also give the proprietors, management, and shareholders information and confidence to come up with bold decisions. This also helps in the identification of opportunities available to help the business grow.
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