Importance of Accounting in today’s business
For recording Financial Transactions in a business, accounting is most important. The financial stability of any business cannot be stated without accounting. Accounting plays a vital and crucial role in preparing accurate financial statements. The basic purpose of accounting is to provide help and assistance to stakeholders and to enable business decisions with the help of financial information.
Accounting is a procedure comprising of the following steps –
- Ensuring Accuracy
Accounting is commonly mentioned as “Language of Business”.Accounting is important, because to grow the business there has to be a process that can be predicted and measured. This involves a methodology of tracking–
- Business assets
The main purpose of an accounting information system (AIS) is –
- Collating financial and accounting data
- Creating informational reports
The above details help managers and other accounting professionals to make proper business decisions. Each procedure in the accounting sequence plays an important role in making valid entries and managing the company’s financial assets each time a buying or procurement is made or an income is earned. If a company decides to implement an accounting sequence, it is important that each step is followed in the right order.
An Accountant is a professional who takes care about accounting transactions and performs financial functions. Normally, the accountant deals with third parties, such as –
- Financial Institutions
Accountants can help in determining areas for growth by providing informaion on things such as –
- Cash flow plans
- Inventory Management
- Business Financing
Also provides advice on property and equipment leasing and purchase, which helps in case, is audited by the Internal Revenue Service.
Importance of Auditing in today’s business
Auditing is a major business requirement that includes the assessment of evidence and documentation about the economic and transaction activities of a company.The purpose of auditing is to provide an open minded independent examination of the financial statements, which increases the profit and reliability of the financial statements created by management, thus increasing user confidence in the financial statement, reduce investor risk and accordingly reduce the costs. Purpose of auditing is to follow and ensure compliance of itsseveralcorporate objectives.
The purpose of auditing is to provide an independent opinion to the shareholders on the genuineness and state of affairs of the business in the form of financial statements, whether they have been prepared in compliance with the Companies and other relevant Acts and to report by exception to the shareholders. TheInternal Revenue Service can audit to verify the accuracy of a taxpayer’s returns and other financial transactions.There are several types of audits that can be performed, such as –
- Compliance Audit
- Construction Audit
- Financial Audit
- Information Systems Audit
- Investigative & Forensic Audit
- Operational Audit
- Tax Audit
- Cost Audit
Some of the advantages of having a good approach of auditing are –
- Measures to protect assets and minimize the possibility of fraud.
- Productivity improvement in operations.
- Ensuring integrity and financial reliability.
- Establishing compliance with statutory regulations and laws.
- Put in place procedures for monitoring.
Auditing can be defined as the examination of documents and collating evidence, which are involved in accounting and other transactions. Mainly it helps to establish the intensity with which an audit is accomplished. It can range from simple to complex process, to examine the company documentations.
An Auditor is a professional who examines financial records to evaluate the evidences obtained. They make sure that financial records are in order and that tax laws are complied with regularly.
The auditor’s responsibility is to plan and perform the audit to obtain assurance about whether the financial statements are free of information misstatement, which mighty be caused by an error of judgment or fraud. They can also give advice and recommend for possible risk avoidance measures and of savings cost through –
- Preparing Reports
- Analysis Reports
- Financial Statements
The five characteristics of an auditor which are important in this profession are –
- Should have a required experience. Professional certifications apart from main academic qualifications are a must for an auditor
- Should have good ability to make and apply independent decisions
- Should have the ability to understand different business needs of requirement
- Should be independent and confidential.
- Should have good effective Communication Skills
Auditors evaluate financial transactions, help and work to ensure that companies move forward successfully to achieve huge growth in their respective business in the long run.
Importance of Accounting and Auditing with 5 reasons in today’s business
5 reasons of Accounting –
Accounting helps to have better communication of the financial information for Managers, Investors and Owners those who need to assess the financial performance of a company.
- Accounting help in proper planning for Financial Stability
In order to aid financial decisions, proper planning is a requirement for an entity. This actual planning helps us to understand the inter connected aspects of financialinformation such as –
- Cash Flow Planning
- Sales Planning
- Procurement Planning
- Inventory management
- Development Planning
- Establishing various targets including Profit goals etc.
All these are dependent on the quality of financial information and accounting data.
- Accounting assists in evaluation of Business Performance
The records of accounting consists of financial Balance Sheet, Profit and Loss accounts, Cash flow statements, which help to understand the financial performance and financial state of affairs as well as cash flows for further analysis of the performance of the company’s business. It is also very useful to compare with historical accounting data with the current data.
- Accounting aids helps future Financial Estimates and Budgets
The accounting details aid a company to prepare budgets and also forecast for future periods. Business models are constructed based on various data processed by accounting information.
- Accounting helps in keeping records in order
Accounting is one of the basic solutions for keeping records in a systematic way. Financial information is collected from different sources and then organized, analyzed, validated and Communicated to enable informed economic decision making which will help in obtaining long term results. The making use of statistical tools, companies around the globe can able to plan their economic pursuits to grow their business. Government makes fiscal and monetary policies by using these companies’ financial information.
- Accounting helps in discovery and prevention of Fraud
Frauds can only be discovered and prevented through proper accounting records. This accounting information system is the only way out to keep track of all fraudulent occurrences ina very appropriate, effective and efficient way.
5 reasons of Auditing –
- Auditing helps in establishing accountability
As the business grows, there arises the importance of establishing accountability and the manner. These can be structured by the shareholders as well as top management. Company financial managers need to assure compliance of such policies with the help of accurate financial reports as and when required to verify.
- Auditing helps in assigning complete report
Audit reports provide a complete and details of its findings to small as well as large business. In the future if there are any changes happen to the business, the same will have to be updates for a complete understanding of the financial information whenever it is required to be inspected.
- Auditing helps to encourage Value and Credit Rating
Auditing regularly and consistently of financial statements is a rewarding part of any business for Investors, Creditors and Lenders. It helps in stabilizing and improving the credit rating of a business.
- Auditing helps to provide a very efficient Reliability
Auditing can benefit from pursuing audited financial statements for the tax authorities, financial institutions, and company management with an independent financial auditing, tax officials can depend on the accuracy of the financial information provided for thetax computation.
- Auditing provides a genuine Accuracy and Assurance to business
Auditing can offer 100% genuine and accuracy so that an assurance of the financial stability for any business is obtained.Through auditing, assurance can certainly obtained from a well carried out auditing process and avoid any miscalculation/ misstatement of financial statements.
So in todays any business accounting and auditing play a very vital role to keep the financial aspects of business in an orderly way.
Hope this article will help you to know more and understand the reasons why accounting and auditing is so important to run a good business. To know further you can log on to our website