Financial_Accounting_Practices_in_an_Organization

Introduction Giving a presentation to a group of people with no knowledge of the subject matter leaves the presenter with the task of coming to the presentation prepared and fortified with the proper information on the subject. This paper will outline a scenario of a presentation given to a small group of business owners with no prior knowledge of accounting or finance. The presentation will attempt to identify the target audiences, purposes and natures of financial statements and managerial reports. The presentation will also outline the use of financial accounting information when making informed and ethical business decisions in an organization. Identify Variables of a Financial Statement Financial Statements are formal records of an organizations financial activities. It is a part of the process of financial reporting. The financial statement provides an overview of a businesses financial position in short and long-term analysis. There are four basic types of financial statements:  Balance Sheet: It is a statement of financial condition and reports on a company’s assets, liabilities and net equity at a given point in time.  Income Statement: A profit and loss statement that reports on a company’s results of operations over a period of time.  Statement of retained earnings: Outlines the changes in a company’s retained earnings over the reporting period.  Statement of cash flows: Reports on a company’s cash flow activities, particularly the operating, investing and financing activities. The purpose of the financial statement is to provide information pertaining to an organizations financial performance, strength and its changes in financial position that is make useful to many users when making economic decisions. The statement needs to be relevant, understandable to all, contain reliable information and comparable. The organizations liabilities, equity, reported assets, income and expenses are reported in a financial statement. The audiences or target users of financial statements include:  Potential investors  Banking institutions  Government agencies  Employee/employers  Owners or managers of a company Financial statements are used to submit annual reports to stockholders of an organization after a financial analysis is performed on the statement to give a more detailed understanding. Investors use financial statements, that are usually prepared by professional financial analysts, to help them make a decision to invest in a company or not. Banks and lending institutions use financial statements to make decisions about providing a company with fresh capital, extending a debt or to finance an expansion venture or other capital pertaining to a company’s growth plans. Government agencies use financial statements to analyze the propriety and correctness of taxes or duties declared and paid by an organization. An employee of a company use financial statements to get information about the stability and profitability of their employer. The financial statement also gives an employee insight into how a company will provide retirement benefits and employment opportunities that allows an employee to climb the company ladder of success. A financial statement also benefits consumers or customers of a company by providing information about expansions, continuance, contributions to the local economy by patronage of local suppliers and the organizations long and short-term trends. Although a financial statement cannot provide users with all the information they might need, it is still a good point of origin for ascertaining information that is common to all users. Using Financial Accounting Information to Make Business Decisions The purpose of accounting is to provide a company, organization or individual with the information that is needed to make accurate and sound economic decisions. The accounting information provides external parties, such as investors, creditors or tax authorities with a financial report. Managerial accounting is different from financial accounting because the former is for internal decision making and is not required to follow the rules issued by the standard setting institution. Financial accounts follow the guidelines according to the Generally Accepted Accounting Principles (GAAP). The occurrences of unethical practices in businesses and company’s have become more frequent and common. An unethical action in a company can have a negative affect on the company as a whole that could lead to its downfall. Many companies strive for good ethics to build credibility and a good reputation with consumers, suppliers and other organizations. A company must adhere to the Corporate Social Responsibility (CSR) guidelines. It is the understanding that a business has a social obligation beyond making a profit. Many companies incorporate an internal corporate “code of ethics” to their mission statement that sets guidelines to help in the CSR process. Financial accounting is susceptible to insider trading, securities fraud, creative accounting, misleading financial analysis, bribery and kickbacks. The integrity and reliability of the financial accounting information of an organization is important because of its use by internal and external entities. Many variables are used to ensure integrity in accounting information in a company such as the ethical behavior of individual accountants, accounting principles, audits and the makeup of a company’s internal structure. Conclusion Financial Accountants play a large role in providing a company the information it needs to make sound, informed and ethical business decisions. A company has to rely on the personal competence and professional judgment of the financial accountant preparing the financial statement and analysis. Professional judgment is required because sometimes accounting information is based on inexact measurement and assumptions are sometimes required. An organizations success is realized by taking chances and risks on their employee’s capability and expertise in their field. The finance department of a company plays a large role in making sure a company maintains financially sound and solvent to stay successful in their chosen industry. Block, Hirt (2005). Foundations of Financial Management (11th ed.). New York: McGraw-Hill. Washington, Brandon R. (2007). Financial Accounting Overview