Understanding Risk and Return: An Accountant's Essential Guide

This essay examines the critical role of risk and return analysis in accounting. It argues that despite a potential accountant's focus on financial record-keeping, a deep understanding of risk and return is essential for making informed decisions, preparing accurate financial statements, and providing valuable insights to stakeholders. The essay defines different types of risks, emphasizing financial risks, and highlights how accountants must consider interest rates and foreign exchange rates. It discusses the accountant's responsibilities in compiling, recording, and communicating financial information, stressing the importance of assessing risks and anticipating returns for investment decisions. The essay also touches upon generally accepted accounting principles and the application of accounting information by various users like owners, managers, investors, and government agencies. It concludes that the accountant must possess strong analytical skills to evaluate risks, manage finances, and forecast future returns for the company's success in a complex business environment.

“What is the point of learning about risk and return if I am planning
to be an accountant?”
INTRODUCTION
In today’s world, there are several forms of business organizations which are
composite and diverse. With the current trend of globalization, these organizations
require absolute, apparent, truthful and precise details which need to be assessed
speedily for them to function profitably and smoothly. Hence, an accountant is
essentially required in the organization for identifying, administrating, correcting and
reporting its accounts and communicating the important information so that the same
can be utilized by its intended users. Over the years, there has been radical change
in business environment. With the advancement in technology, business and its
operations in any field has become more complex. Hence, there has been a
tremendous change in the role of accountants. Accounting is the basic tool with
which the owners access their fiscal performance and further make strategic
decisions.
RISK AND RETURN
In present modern scenario, each and every organization encounters risks that
impose potential danger to the organization. Evaluation of risk at an early stage is
essentially required for a business to run successfully. Strategic, compliance,
financial and operational risks are the main kinds of risks. Out of these, financial
risks impose great threat to the company. An accountant must perceive the risks
while assessing the accounts of the company. Interest rates and foreign exchange
rates are taken into consideration while assessing the same (InfoEntrepreneurs,

2009). Company’s potential risks help its shareholders to make proper investment
decisions. As an accountant manages, records and identifies the accounts of the
company, it doesn’t give clear estimation of risk but provides an insight of the risks
faced by the company. However, it is also important to anticipate the returns
associated with company. The correlation between risks and return is a major factor
that helps an investor in making sound investment decision. Investing in wide variety
of fiscal instruments is considered an excellent accounting practice (Bradley, 2017).
An accountant has to keep a record of the debts instruments and risk and return
related to same helps an accountant to make correct and reliable accounting
decisions.
ROLE OF AN ACCOUNTANT AND WHY IS IT IMPORTANT TO
LEARN RISK AND RETURN
An accountant is the key person who is responsible for compilation, precision,
recording, scrutinizing and communication of company's fiscal operations. The
primary function of an accountant is to observe and organize correct and detailed
financial records. They execute summary of the fiscal working of the company.
Accountancy has been regarded as the language of business. Proper analysis of
accounts by preparing assets, liabilities and assessing capital of the company is
done by an accountant. He is liable for the precision of monetary dealings of the
company and also for proper adherence of certain guidelines. As he is responsible
for proper recording of funds of the company, it is imperative for an accountant to
assess the risks and returns associated with the given firm. An auditor reviews the
financial records prepared by an accountant in terms of correctness and provide
insight to the intended users of the company about its current performance (Sokano,

2016). These auditors’ report thereby provides an insight of the financial condition of
the company and affects the market value of the company. All the details related to
assets, liabilities, capital and expenditure that are part of financial statement are
provided by the accountants and it gives summary to its owners on what and how to
make future decisions of the company. Further, financial ratio analysis provided by
accountants helps an organization in making a comparison with its competitors
(Vitez, 2017). Hence, it is essential for an accountant to study about the risks
involved and return anticipated. Moving forward, the accounting details provided by
the accountant are also used by its owners in the application of loans from banks
and investors. Thereby, it is significant for an accountant to have an insight of the
prospective monetary returns; this information can be utilized by the banks in giving
loan to the organization.
Also, accountancy involves adherence to certain regulations which applies equally to
different organizations, hence it provides the individuals to make a suitable and
efficient comparison amongst different companies on the basis of financial analysis.
There has been overall expansion of accounting industry owing to establishment of
new companies, augmentation of government rules and intricate monetary
conditions. Three types of accounting are followed by most of the companies i.e.
management accounting, financial accounting and cost accounting (Isiavwe, 2015).
The management accounting emphasize on the distribution of company’s expenses
to commodities, preparation of budgets and concentrate on providing fiscal details
for making strategic decisions. Management accountant provides essential
information within the organization. While the financial accountant formulates fiscal
report with records of assets, liabilities, revenue and cash flow. All the expenses of
obtaining resources is taken care by the cost accountant. Therefore, they all help in

acquiring loans and funds from outside and provide detailed information to its
intended users. Hence, complete analysis of risk and return is vital for an accountant
to fairly perform his duties. Generally accepted accounting principles is the basis of
accounting followed by accountants (Shanker, 2017). An accountant provides
consistent, impartial and correct information by accessing risks and returns faced by
the company. It is clear that it is an accountant’s responsibility to provide estimates
and to forecast performance capacity and provide same estimation to higher
management to make strategic decisions. Also, it is his duty to evaluate and
administer risks and organize for finances for the company. All the intended users of
the company including owners, managers, government agencies, investors and
employees makes use of the accounting information provided by the accountant to
make strategic decisions. Hence, it is indispensable for an accountant to properly
access risks and anticipate returns for the future of the company as well as its
shareholders and individuals associated with the company.
CONCLUSION
We hereby conclude that as per the discussion above, an accountant holds a major
position in an organization. It is his responsibility to execute all the monetary tasks
related to preparation and communication of fiscal records. Apart from that in the
present circumstances, he needs to possess other major qualities like being truthful,
apparent, goal oriented and reliable. Good methodical skills and above all having the
ability to evaluate risks associated with the company to make decision for budgeting
and external financing and to predict the future returns for the company is vital in
today’s modern, complex and dynamic business environment.

REFERENCES:
Bradley, J., (2017), Risks Vs. Return Accounting .Available at
http://smallbusiness.chron.com/risks-vs-return-accounting-74512.html (Accessed
27th September 2017)
Sokanu., (2016), What does an Accountant do? Available at
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Isiavwe, D., (2015), THE ROLE OF THE ACCOUNTANT IN MODERN BUSINESS
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Vitez, O., (2017), Role of Accounting in the Modern Business Environment Available
at http://smallbusiness.chron.com/role-accounting-modern-business-environment-4010.html
(Accessed 28th September 2017)
Shanker, S., (2017), The Advantages of Accounting Information Available at
http://smallbusiness.chron.com/advantages-accounting-information-3949.html
(Accessed 27th September 2017)
InfoEntrepreneurs., (2009), MANAGE RISK Available at
http://www.infoentrepreneurs.org/en/guides/manage-risk/ (Accessed 27th September
2009)