The Fundamental Concepts Of Accounting

Accounting photoThe Federal Election was held in Australia on 21st of August 2010. During the rather boring election campaign there were questions raised by the major parties, and everyone else for that matter, on how the elected government would go about accounting for the very large amounts of money they receive and spend. These people talk in billions of dollars. It is rather mind-boggling but the accounting system they use can also be applied to small business and personal finances.

Most households require some form of accounting to deal with their personal financial matters. You are probably aware of the saying that the only thing that is certain in this life is death and taxes. I think that it is fair to say that accounting affects the lives of everyone in some way in a modern society.

I have always thought of an accountant as someone who processed the financial data I prepared for them and submitted my annual income tax return required by the Australian Taxation Office (ATO). Their value was measured by the amount of money they could magically retrieve from the ATO by minimizing the amount of tax I was required to pay. This view is shared by many who see accountants as nothing more than bookkeepers, ‘number crunchers’ or ‘bean counters’. Unfortunately accountants are not magicians and the reports they prepare must stand up to the scrutiny of the ATO. The accountant should therefore be perceived as a professional who is able to minimize income tax by applying his talent and know-how acquired through years of study and experience

The accountant must abide by the rules. There are no two ways about that. The terms of reference are set out in:
* Income Tax Assessment Act 1936 and 1997.
* Corporation Act 2001.

If the accountant fails to follow the laws made by our society, he/she will be punished. Accounting is a discipline and is extremely important to any financially healthy entity. Inadequate records normally accompanies business failure and in some cases bankruptcy. Accountants provide information to the owners and managers of a business or company so that appropriate decisions can be made on purchases and investments. This is achieved by processing records, interpreting these records and reporting the findings from these records to these decision-makers in monetary terms.

The role of the accountant is always changing due to legislative changes and technological developments. Accountants are spoilt for choice when selecting an area in which to specialize. There are many opportunities in private business, government bodies or institutions. Some examples of the career paths an accountant may choose to pursue include:
* Taxation
* Auditing
* Budgeting
* Cost Accounting
* Management Advisory Services
* Financial Planning
* Forensic Accounting.

There are professional accounting associations available with entry qualifications and the aim of these associations is to keep its members up to date with new developments. In Australia the longest established associations are the:
* Institute of Chartered Accountants (ICA)
* CPA (formerly known as the Australian Society Of Accountants)
* The National Institute of Accountants (NIA) incorporating The Association Of Accounting Technicians (AAT).

These associations have had a significant effect on the development of accounting in Australia. Its members are expected to abide by the pronouncements made by these associations as good accounting practices. Members are also expected to undertake a certain amount of professional development each year as it is vital that accounting keeps pace with the needs of those it serves.

The increase in the size of organizations means that it is impossible for a manager to keep in touch with all that is going on. This is the reason for the development of the role of an accountant in a management team. The growth of collective ownership rather than individual ownership has meant that the function of the accountant has been extended to preparing financial reports for shareholders and people outside of the businesses they are involved in. Fortunately, computer technology has enabled the saving of a lot of time and energy and the production of more accurate and detailed information.

Accounting is continually affected by legislation, technology, economic conditions and professional associations. It is these changes that has molded this profession into the sometimes nerve racking but essentially rewarding profession it is today.