Auditing And Accounting

Key Areas for Accounting Careers

Audit: Audit is at the core of accounting work. Accounting auditing careers involve checking accounting ledgers and financial statements within businesses, public and not-for-profit organizations. Being increasingly computerized, this work can rely on random sampling methods. This provides a solid foundation to future specialist work, as it really enables you to understand how an organization makes money.
Budget Analysis: A budget analyst develops and manages an organization’s financial plans. Many jobs exist in government and private industry. You’ll require strong quantitative skills for this work, along with good people skills, because you’ll be involved in negotiations.
Financial: Financial accountants draw information from the general ledgers to prepare financial statements. They also take part in the business’s important financial decisions involving mergers and acquisitions, employee benefits planning and long-term financial projections. This work can very from week to week, so needs a combined understanding of accounting and finance.
Management Accounting: Management accountants work in companies and contribute to decisions about capital budgeting and business analysis. Major activities include cost analysis, contracts analysis, and participation in efforts to control expenses. Management accountants are now major contributors to business decisions, working alongside marketing and financial managers to develop new business.
Tax: Tax accountants prepare corporate and personal income tax statements. They also prepare strategies for deferring taxes, when to expense items, how to approach a merger or acquisition, etc. You need to have a thorough understanding of economics and the tax code. Many large firms now also look for legal knowledge.

#48- Internal Control of Small Companies

The Accounting & Auditing blog found an interesting findings on small companies' internal control on the website. Plz follow the link from CFO.com:
http://www.cfo.com/article.cfm/12202253?f=home_featured
( Note: pasting the link in this blog is not intended to infringe the copyright of CFO.com, but to share the knowledge with the blog' reader)
Small companies always struggling in the designation and implementation of internal controls due to:
- high cost involving in initiating internal control
- high monitoring and implementation costs
- time-consuming
- insufficient personnel
- unfavorable cost vs benefit analysis
The benefits brought from implementing internal control by the small companies is always lesser than the costs. And yet, internal control is considered the foundation and fundamental for future organic growth.

#47- Arms Length Transactions

Let's illustrate transfer pricing issue among 2 inter-company within the same Group.
Company A is incorporated in British Virgin Island and is not subject to tax.
Company B, which is Company A's subsidiary incorporated in USA, and is subjected to USA corporate tax.

Company B is making profit this financial year, and has a taxable profit of US$100million subjected to USA corporate tax. Company A might illegally 'transfer' the taxable profit of Company B to Company A, who is residing as a tax heaven, where no tax is payable on profits earned. To illustrate, Company A might charge Company B a lump sum of 'management fees', 'IT support fees' 'royalty fees', etc and resulted in the decrease in Company B' taxable profit.

Hence, while performing audit, we need to be aware of the nature of the inter-company transactions, and to test that the transactions are within arms length (it often requires expert to perform arms length test). This is to counter strike the transfer pricing issues mentioned above.

#46- Disadvantage of Hedge Accounting

Implementation of hedge accounting is aimed to reduce the earning volatility of the Company and to comply with the matching of the principle. However, there are some disadvantages in associated with Hedge Accounting:
- the hedge relationship has to be highly effective in order to qualify for hedge accounting
- high monitoring costs incurred from closely and constant moniotoring
- high documentation costs ( substantive documentations are required to support the hedge)
These factors are discouraging the Company from adopting hedge accounting.

#45- Timing of accruing expenses

We got the following query from the reader:

" ...Could you please tell me when the accrued expenses should be accounted for in system (AP)? is it at the beginning of each month? and once accounted should it be reversed immdiately after entering the corresponding expense for the accrual or should it be done in one go at the end of each month"

Before answering the question, we need to find out the nature of accruals, which is:
- to account for service received but billing not received from suppliers
- to account for expenses incurred ( e.g. montly provision for bonus)

Hence, practially, accruing for expenses should be done at the end of each month while doing month end closing. Yes, the amount should be reversed out immediately upon receiving the billing / payout the expenses. To illustrate with the following example:
Company XYZ has received repair & maintenance services from a service provider. The service amount has been agreed at US$500. However, at the end of the month, no billing has been received and the following entry have to be passed:
Dr. Repair Expenses
Cr. Accrued Expenses

Upon receiving the billing from service provider, the following entry should be passed to reverse the accruals:
Dr. Accrued Expenses
Cr. Trade Creditors