Accounting Concepts and Practices: A Comprehensive Report

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Accounting Concepts
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Table of Contents
Executive Summary...................................................................................................................................3
Introduction...............................................................................................................................................3
Question 1..................................................................................................................................................4
Conclusion..................................................................................................................................................8
Question 2..................................................................................................................................................9
Question 3................................................................................................................................................10
References................................................................................................................................................12
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Executive Summary
The role of accountants are very important in an organization.He performs various functions that
are very vital in evaluating the financial performance of the firm. This report will focus on the
importance, characteristics and services they provide to make the firm more profitable.It will
analyze how a financial and management accountant plays different roles in the firm and why it
is vital to recruit both in the firm. The report will also present few similarities between the two. It
will thoroughly scan the advantages and disadvantages of the role of accountants portrayed in the
firm.
Introduction
Finance is said to be the backbone of an organization. It monitors and controls all the flow of
capital that is being induced in different departments of the firm.To meticulously follow the
transactions recorded in the firm, an accountant plays a key part.He keeps track of all the
activities that are being held in the firm.The role of accountant depends on the size of the firm.
There are different type of accountants who emphasize on diverse segments of accountancy.
These are categorized as Financial & Managerial. The overall process of each segment is
different and they portray their own part independently.
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Question 1
There are several types of accountant who efficiently participate in the various financial
activities of the firm. There are different fragments in the finance department that needs special
attention. For this, there are two types of accountants who are responsible for managing each
segment and making policies for consistent growth. The different types of accountants can be
classified as:
Management AccountantThe role of this accountant is to study the fiscal report make decisions
regarding the performance of the company. It is a very vital position, as the responsibilities
include preparing budgets, cash flow statement to make key decisions (Brands and Holtzblatt,
2015). He takes measures to resolve any issues that are arising in the firm and are leading to loss.
They are also known as the risk managers, planners, strategists and decision makers.
Financial AccountantThe part played by these accountants are different from that of
management. They ensure proper recording and reporting of the transactions. They are
responsible for generating extremely vital fiscal reports such as Income Statement, Profit and
Loss A/c, and Balance Sheet (Weil, et.al., 2017). They are also accountable for tax reporting,
processing of inventory and other business activities.
Both the roles are equally essentialand they deliver different information to the higher
authorities. There is a chain of events that follows once the information is gathered. This can be
further seen as:
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Image: Information and Users of Management and Financial Accountant, 2019.
Source: By Author, 2019
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ManagementAccountantTheinformationprovidedbytheaccountantreflectstheinternalactivitiesandthepoliciesresponsibleforthesame.Theyaremorefocusedonimprovingtheflowofcapitalandmeasurestakentocontroltheexpenses,inordertoincreasetheprodcutivityandprofitability.Theusersofthereportsgeneratedbythemanagementaccountantaregenerallytheinternalemployees,departmenthead,seniormanager.FinancialAccountantTheinformationprovidedbytheaccountantisrelatedtotheoveralltransactionsthatoccursinonefiscalyear.Itincludesdatafromthepreviousyearaswellthatbeencarriedforwarded.Theusersofthisaccountinginformationincludethehighermanagement,theinvestors,thelenders,thesuppliers,thegovermentforstatutorypurpose.

These roles may seem similar to people, which makes it little hard for them to comprehend their
implications respectively. To further simplify it, presented below are the similarities and
dissimilarities between the two accountants:
Particular Points of Similarity Points of Dissimilarity
Management Accountant&
Financial Accountant
1.Both are part of the
accounting information
System.
2. Both the systems consider
the economic events while
framing reports.
3. Their analysis revolves
around the revenues,
expenses, assets and
liabilities of the firm
(Chatterji, et.al. 2016).
4. They aim at determining
and measuring the costs of
different aspects involved in
the production process.
1 Financial
Accountant frames
the fiscal
statements,
whereas
Management
Accountant
interprets them.
2 The financial
accountant
provides the report
to the external
users and the
management
accountant to the
internal users.
3 Financial
Accountant uses a
particular method
for framing the
financial reports,
whereas
management
accountants do not
require any specific
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methods.
4 Financial
Accountant takes
the base of one
financial year for
faming reports,
management
accountant can take
data from previous
year for the
purpose of
comparison
(Theriou, 2015).
Accounting needs precision and complete focus, as it deals with lot of crucial numbers.There are
certain advantages and disadvantages of these roles, which are classified as below:
Types Advantages Disadvantages
Financial Accountant 1. They have complete
in-depth knowledge of
every single
transaction occurring
in the firm
(Rikhardsson, 2017).
2. It is easier for them to
frame the fiscal
statements.
1. They have to take care
of lot of statutory
compliance and
follow the accounting
principles.
2. They cannot take any
measure in case of
mistakes.
Management Accountant 1. They are eligible to 1. Their analysis is only
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make key decisions
after analyzing the
fiscal reports.
2. They provide
measures for areas
that require special
attention.
restricted to the
internal users of the
company.
2. They have to deal
with every department
and every area of the
firm for results.
Conclusion
After the analysis of the report, it is noted that management accountants have an edge over
financial accountants. Therefore,it is suggested to Lukethat he hires a management accountant.
He may have to give extra salary to him, but he will closely evaluate each and every
departmental activity and will provide solutions for the problems arising. It will be beneficial for
long-term growth of the company.
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Question 2
Sarah’s feelings are stuck between her sister and her work. Both the aspects are equally
important and she has to do justice with both of them. In order to solve the dilemma ethically,
she can use the Langenderfer and Rockness model to solve the issue (Melville and Cull, 2018). It
can be further applied as:
 Facts of the caseSara Smith is working as an associate auditor for inspector audits for
many years. She is currently assigned to audit Confident Securities Ltd.After the audit
Sara found that there is certain misbalance in the reports of accounts receivables. The
value of the report is greatly overstated, it does not provide a true and fair value of the
assets and revenue.Sara’s sister Tamara has recently joined the accounts receivable team
of Confident Securities Ltd after struggling for a stable job after graduation. The head of
the department is the direct supervisor of Tamara.
 Ethical issues in the caseIn this case, the firm has not provided accurate reports to the
auditors. As per ethics,Sara has to provide feedback about the quality of the financial
reports. But, her sister is working in the same department where the issue has been
diagnosed. Sara is in dilemma to support her sister or comply with her duties.
 Norms, principles and values related to the caseSara is bound with Ethical duties to
perform. It is her responsibility as an auditor to report any fault in the transactions.If she
will not comply with her role, she can face disqualification.If the transactions have not
been recorded as per the accounting principles, it is a major crime of the company.
 Alternative course of actionSara can report the misbalance in the financial reports to
higher authorities so that appropriate action can be taken against the Confident Securities
Ltd (Merchant and White, 2017). She can help her sister to get another job, if her job in
the firm comes to stake.
 Best course of action in consistent with the points stated aboveAs per the case, Sara
should oblige with her duties and report the faults. It is important as, if the fault is left
unattended, it could lead to major issue in future. This can have negative impact on
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Tamara’s career. As Tamara has just started her job, she can get another job much easily
on reference basis.
 Consequences of each possible course of actionIf Sara doesn’t reports the fault to
higher authorities, she may held accountable and may face disqualification, but this way
she will be able to save her sister’s job and also help her to create a good image in front
of her supervisor. But, if she reports it, then her sister may not get much attention from
the supervisor and in the worst case lose her job.
 Decision The best decision under this case is that Sara reports the fault. It is morally and
ethically correct. It may become difficult for her sister to find a new job, but she can
surely find one. This will be appropriate for the long-term prospects.
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Question 3
Every organization needs a business structure for running the business functions properly and
smoothly. In this particular case, Mark and Melissa are two friends running their own business
individually. They want to collaborate and work together, through which they can generate
higher revenues and attract a wide range of investments, but at the same time they do not wish to
lose their control as founders. To remedy this situation, an appropriate type of business structure
should be presented to them which will solve all their issues and will let me get what they
exactly want.
Business Structure: According to the situation, Mark and Melissa should incorporate a Pvt. Ltd.
Firm.This way they will be able to hold a high percentage of value under their control and can
also open gate for new investment opportunities (Eisenberg, 2015).They should hire an
accountant to manage the allocation of funds as per their need and requirements. An accountant
plays a very important role in allocation of funds from different sources of capital.To solve their
issues, he will help in decision making process and will guide them in the right direction. Let us
shed more light towards the role of accountant in enhancing the business structure and how
framing a Pvt. Ltd. Firm will let Mark and Melissa hold control as founders:
 As per the norms of Pvt. Ltd. Company, the owners can keep large number of shares to
themselves and hold complete ownership. This will give the public a little less percentage
of shares, but it will be sufficient to generate investments, that can be further utilized for
capital growth.
 The accountant will take financial data from Mark and Melissa, about their total net
worth and the value of assets they both have in their individual entities.He will explain
them all the dire consequences and functionalities of entering into a company. He will
guide them through various methods that can be adopted to grow the capital of the
company in coming years (Windeck, et.al., 2015).
 The accountant will assign the capital according to the desired percentage of both the
owners.The left proportion will be saved for the public to invest in.This will satisfy their
need of ownership and also will be able to generate investments.
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 The accounting principles will help the manager to efficiently distribute the funds and
take authentic decisions. Proper roadmap will be framed for achieving desired goals in a
set time frame. This will help Mark and Melissa convert their thoughts into reality.
 Accounting plays a major role in decision making in an organization. It is very important
in forecasting the value of the company on the basis of current capital structure and
performance (Eisenberg, 2015). It also aids in recording, monitoring and controlling the
transactions taking place in the organization.
 It gives the managers an insight of the exact position of the firm and the measures that
can be taken to improve the performance as a whole or in specific areas.
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