ECPAs Accounting services provided is based upon our global & integrated understanding of accounting service.
Usually, accounting is understood as the Language of Business. However, a business may have a lot of aspects which may not be of financial nature. As such, a better way to understand accounting could be to call it The Language of financial Decisions. The better the understanding of the language, the better is the management of financial aspects of living. Many aspects of our lives are based on accounting, personal financial planning, investments, income-tax, loans, etc. We have different roles to perform in life-the role of a student, of a family head, of a manager, of an investor, etc. The knowledge of accounting is an added advantage in performing different roles.
ECPAs focus is on language of business, in a business organization, many questions strike our clients’ minds.:
To answer questions of such nature, an organization needs to acquire information generated through the accounting process provided by ECPAs, the people who take policy decisions and frame business plans use such information.
All business organizations work in an ever-changing dynamic environment. Any new program of the organization or of its competitor will affect the business. ECPAs through accounting service provided introduces an effective tool for:
“Just like arithmetic is a procedural element of mathematics, book keeping is the procedural element of accounting”
Business Managers have to:
Accounting information provided from ECPAs is required for many such decisions e.g.:
TYPES OF ACCOUNTING that could be provided by ECPAs
Financial accounting is primarily concerned with the preparation of
financial statements whereas management accounting covers areas such as interpretation of financial statements, cost accounting, etc.
1- Financial accounting
ECPAs when providing financial accounting deals with the preparation of financial statements for the basic purpose of providing information to various interested groups like:
Financial statements, i.e. the income statement and the balance sheet
indicate the way in which the activities of the business have been
conducted during a given period of time.
Financial accounting is charged with the primary responsibility of
external reporting. The users of information generated by financial
accounting, like bankers, financial institutions, regulatory authorities,
government, investors, etc. want the accounting information to be
consistent so as to facilitate comparison. Therefore, financial accounting is based on certain concepts and conventions which include:
The significance of financial accounting provided by ECPAs lies in the fact that it aids the management in directing and controlling the activities of the firm and to frame relevant managerial policies related to areas like production, sales, financing, etc. However, the information provided through financial accounting by nature suffers from certain drawbacks:
1st. drawback: The information provided by financial accounting is
consolidated in nature. It does not indicate a break-up for different departments, processes, products and jobs. As such, it becomes difficult to evaluate the performance of different sub-units of the organization.
2nd. drawback: Financial accounting does not help in knowing the cost
behavior as it does not distinguish between fixed and variable costs.
The information provided by financial accounting is historical
in nature and as such the predictability of such information is limited.
The management of a company has to solve certain ticklish questions like:
The financial accounting information is of little help in answering these questions.
“The limitations of financial accounting, however, should not lead one to believe that it is of no use. It is the basic foundation on which other branches and tools of accounting analysis are based. It is the source of information, which can be further analyzed and interpreted according to the tailor-made requirements of decision-makers.”
2- Management accounting
ECPAs when providing Management accounting service is actually providing a ‘tailor-made’ accounting through which ECPAs is able to facilitate the management by providing accounting information in such a way so that it is conducive for policy making and running the day-to-day operations of the business. The basic purpose of management accounting provided by ECPAs is to communicate the facts according to the specific needs of decision-makers by presenting the information in a systematic and meaningful manner.
Management accounting provided by ECPAs, therefore, specifically helps in planning and control. It helps in setting standards and in case of variances between planned and actual performances, it helps in deciding the corrective actions.
An important characteristic of management accounting provided by ECPAs is that it is forward looking. Its basic focus is one future activity to be performed and not what has already happened in the past.
Since management accounting provided by ECPAs caters to the specific decision needs, it does not rest upon any well-defined and set principles. The reports generated by an ECPAs management accountant can be of any duration–short or long, depending on purpose. Further, the reports can be prepared for the organization as a whole as well as its segments.
One important variant of management accounting provided by ECPAs is the cost analysis. Cost accounting makes elaborate cost records regarding various products, operations and functions. It is the process of determining and accumulating the cost of a particular product or activity. Any product, function, job or process for which costs are determined and accumulated, are called cost centers.
The basic purpose of cost accounting provided by ECPAs is to provide a detailed breakup of cost of:
So that effective cost control can be exercised. Cost accounting provided by ECPAs also helps in making revenue decisions such as
those related to :
The objectives of cost accounting provided by ECPAs, therefore, can be summarized in the form of three important statements:
Although Cost accounting & Financial accounting are both provided by ECPAs but Cost accounting has certain distinct differences from financial accounting. The cost accounting system provided by ECPAs provides data about profitable and non-profitable products and activities, thus prompting corrective measures. It is easier to segregate and analyze individual cost items and to minimize losses and wastages arising from the manufacturing processes. Production methods can be varied so as to minimize costs and increase profits.
Cost accounting provided by ECPAs helps in making realistic pricing decisions in times of:
Various alternative courses of action can be properly evaluated
with the help of data generated by cost accounting provided by ECPAs. It would not be an exaggeration if it is said that a cost accounting system provided by ECPAs ensures maximum utilization of physical and human resources. It checks frauds and manipulations and directs the employer and employees towards achieving the organizational goal.
Distinction between financial and management accounting provided by ECPAs
Financial and management accounting provided by ECPAs can be distinguished on a variety of basis like:
In Conclusion the global vision of Accounting service provided by ECPAs is that Accounting can be understood as the language of financial decisions. It is an ongoing process of performance measurement and reporting the results to decision-makers.
With the advancement of industry, modern day accounting has become formalized and structured. Accounting service is engaged in multifarious activities like: