- Relationship of Accounting with other disciplines :
a) Accounting and Economics :
Economics concerns the decision
making about use of scare resources to satisfy human wants. This can be viewed
from the perspective of a firm or
country on the whole. Accounting provides majority of information to users for making decisions. Accounting
and Economics overlap in m any ways . Accounting helped in the improvisation of
management decision making process, while economic theories influenced the
development of decision making tools in accounting
b) Accounting and Statistics
:
Accounting
information is very precise, and all values are important individually as they
relate to business transactions. However, such precision is not required for
decision making, hence, statistical approximations are sought, hence,
statistical methods are applied in accounting data to get average of
relationships. Also, accounting records generally takes short term view of
events and are confined to a year, but statistical analysis is useful if longer
view is taken. Several accounting ratios, accounting calculations, financial calculations
are based on statistical formulas.
c) Accounting and Mathematics
:
Double
entry book keeping can be converted into algebraic form. Knowledge of arithmetic
and algebra is a pre-requisite for accounting computations and measurements, ex
- calculation of interest. With the advent of computer, mathematics is becoming
a vital part of accounting. Presently, graphs and charts are being extensively
used for communicating accounting information
d) Accounting and Law :
An
entity is created, controlled and operated in a legal environment. Transactions
are governed by various acts such as Sale of Goods Act, Companies Act governs
companies. Accounting system influences the development of law and hence, both
supplement the growth of each other
e) Accounting and Management
:
Management
is a very broad area and covers disciplines mentioned above as well.
Accountants are placed in key managment roles and the information generated by
way of accounting information assists in management decision making. Accounting
data is the basic source of information among several other sources. So,
accounting system must be moulded to serve management purpose
- Limitations of Accounting :
a) The factors relevant for assessing networth of enterprise is not always included since they cannot
be recorded in terms of money. Ex -loyalty
and skill of personnel is the most valuable asset, still the same is not
recorded in books
b) Users are interested to know the
position of the enterprise in future and in long run, but the balance sheet
shows the position of the enterprise as on past
date. Business dynamics change by the time annual reports reach users. However, to overcome this, auditors disclose changes
that effect the origination materially that has taken place up to the date of signing
of report by management, as required by accounting standard
c) Accounting ignores changes in
money such as inflation
d) In some occasions when accounting principles conflict with each
other
e) Accounting estimates depend on
sheer personal judgement of
accountant, ex - method of depreciation adopted, and hence, the user's decision
making is dependent on accountant's judgement
f) Financial statements consider
only those assets that can be expressed in terms of money, Ex - human resource
g) There are different accounting policies for treatment of same item which
results in higher probability of manipulations
- Role of Accountants in society:
Accountancy
profession has very high esteem in public An accountant with his education, skill, training and capability provides the required services to the society.
1. Areas of service
of Accountants :
a)
Maintenance of books of accounts :
i) Proper and systematic recording of
transactions
ii)That will assist in determining the
financial position and financial performance of the enterprise
iii)And assist internal and external
stakeholders in decision making
b)
Statutory Audit
Enterprises are either required by law ( ex
- Companies Act require Companies to get their books audited statutorily, co-operative
society) or by way of decision of owner (ex - partner in partnership firm) to get
their books audited and obtain a report from the auditor as to whether the financial
statements (Balance Sheet and Profit and Loss Account), give a true and fair view
c)
Internal Audit
This is the audit conducted of transactions
and systems (ex - cash management system to prevent misappropriation or theft of
cash) that ensure adequate safeguards are in place with respect to the transactions
and assets of the company. The report is given by the auditor to the management
d)
Taxation
Assist in tax planning resulting in avoidance
or reduction of tax, representing the organisation with tax authorities, settlement
of tax liabilities
e)
Management Accounting and Consultation services
Collect, analyse, interpret and report on information
useful for management for its decision making. Ex - advisory services on working
capital management, expenditure control etc
f)
Financial Advice
Providing guidance in planning and managing
personal finance in areas such as :
i) Investments : Explains the significance
of documents received by shareholders and assists them in their decision making
ii) Insurance : Providing information on various
policies and assist in choosing appropriate policy
iii) Business Expansion : In mergers, accountants
interpret the accounts and advising clients by informing them the cost and financial
consequences of mergers. They are extremely
useful for negotiations and in determining best method of finance
iv) Investigations : To ascertain if profits
have reduced, to decide if it is cheaper to manufacture or buy an article, increase
management efficiency, ascertain the occurrence of fraud, value business etc
v) Pension schemes : Before any provident fund
or pension scheme is finalised, an accountants consultation is required
g)
Other Services
Accountants are required in share registration,
company formation, liquidation, reporting cost data to management (role of Cost
Accountant) etc
2.
CA in Industry:
He
performs functions such as accounting , costing, estimation and budgeting
3.
CA in Public Sector Enterprises:
Example
of Public sector enterprises in India as Bharat Sanchar Nigam Limited (BSNL),
Bharat Heavy Electricals
Limited(BHEL) etc
To
prepare and report on the accounts of such public sector enterprises to public to
justify the financial position and performance of such organisations as depicted in Balance Sheet and Profit and Loss
account respectively.
4.
CA and Economic Growth:
Accountants
must encourage the increase of efficiency of the organisations that will, in turn
enable the growth of the economy in general and must always keep the best interest
of the nation in mind.
_____________End of Unit 1 _____________
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