Financial Accounting adds value to companies in many ways. Accountants, CEO’s, Managers, and other financial representatives are expected to perform an analysis of the company’s financials and then report on the financial health of the company through Financial Accounting and Reporting. It is expected that those representatives are competent and have the appropriate knowledge and expertise to perform the analysis and give sound judgement. The results of their representations are then formed into what is the 10k and 10q, reporting to investors and others the financial health of the company. Unfortunately, the 10k and/or 10q may not be sound and may lack negative information, such as decreased earnings or loses. The misstatement of a company’s financials “can be classified as either fraudulent financial reporting or misappropriation of assets, or both” (Mock, 2004). In an effort to reduce the potential of fraudulent financial accounting and reporting internal controls, internal and external auditing and other forms of detection are put in place to produce sound financial reporting.
Accounting is recognized to be the language of business. It is how investors, creditors, and other companies gain a better understanding of the financial health of the company. It helps investors to make a better decision of whether they want to invest their money into the company or if they would rather not take that chance with the company based on its financial position, past, current, and projected. Accounting helps creditors to determine whether they want to give credit to a company or not based on whether they are projected to have returns and be able to pay back the loan. It also helps other companies to compare themselves with other companies in similar industries to see how they are doing in the market. “There are four major business values contained in the various branches of accounting: planning, communicating, controlling, and profit determination. Accounting information is helpful in communicating a company’s current status and its future plans to managers: the language of numbers is international and uniform across all organizations” (What Is the Value of Accounting Functions in an Organization, 2017).
Successful Financial Accounting and Reporting begins with management. A management accountant’s role within the company is to ensure that financial information is disclosed timely and accurately, so that investors, creditors, and others can make sound business decisions. “If you are working as a Management Accountant, your role is critical to the success of any organization” (Adding Value as a Management Accountant – Business Partnering, 2017). If management is able to add value to the organization and perform up to expectations, they will also have a seat at the table when it comes to making key business decisions within the company.
Sherman and Young did a great job informing their readers that there are two types of misstatements that can occur in the financial statements, a misstatement or mistake or a fraudulent act. Like anything, there is a potential for mistakes and errors can occur. This source talks about how those errors can be either unintentional (mistake) or intentional (fraudulent). I will use this source when discussing the difference between errors and fraud.
“A company’s financial conditions are of a major concern to investors and creditors. As capital providers, investors and creditors rely on a company’s financial conditions for both the safety and profitability of their investments. More specifically, investors and creditors need to know where their money went and where it is now” (What Is the Importance of a Company’s Financial Statements, 2017). Chron did a good job at explaining the importance of being able to rely on the financial statements of a company. Operating results, cash flows, and shareholder’s equity are all key aspects of a company’s financials. Ensuring that these are accurate is critical when investors, creditors, and other businesses are making key decisions.
Misrepresentation of financials can also come in the form of fraud. Accounting fraud and the implications of committing fraud can be life changing. In some cases, the accountant will lose their license, no longer be allowed to practice, fined, thrown in jail, and lose their family. In other cases, the accountant or fraudster could “get lucky” and get a job with the FBI or some other government agency to help them learn how to detect and prevent the type of fraud they committed.
Adding Value as a Management Accountant – Business Partnering. (n.d.). Retrieved January 20, 2018, from http://linkup.imanet.org/blogs/abraham-kulangara/2014/08/25/adding-value-as-a-management-accountant-business-partnering?ssopc=1
Mock, J. M. (2004). Classic Case Studies in Accounting Fraud (Rep.). https://etd.ohiolink.edu/!etd.send_file%3Faccession%3Dmuhonors1111004894%26disposition%3Dinline
What Is the Importance of a Company’s Financial Statements? (n.d.). Retrieved January 20, 2018, from http://smallbusiness.chron.com/importance-companys-financial-statements-21332.html
What Is the Value of Accounting Functions in an Organization? (n.d.). Retrieved January 20, 2018, from http://smallbusiness.chron.com/value-accounting-functions-organization-24616.html
Young, H. D. (2016, June 20). Where Financial Reporting Still Falls Short. Retrieved January 20, 2018, from https://hbr.org/2016/07/where-financial-reporting-still-falls-short
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