Accounting Practice

Accounting practice is a systematic procedure that an entity's accounting department uses to control the accounting records & entries based on accounting records. In addition, other reports are prepared like financial statements, cash flow statements, fund flow statements, payroll, tax workings, payment, receipts statements, etc. They are the basis of reliance by the auditor while auditing the financial statements.

In the modern day, accounting practice software help organizations document their financial transactions to analyze, summarize and report for internal and external review purposes. These documented details about the company’s finances also are required by regulators and tax authorities. In the internal management system, it gives the top management an idea about the progress of the business within a year.

Accounting practice exists as the daily recording of accounting and financial data as per Generally Accepted Accounting Principles (GAAP) and current law practice. Business entities impose various controls to make their accounting records reliable. Accounting records are the basis for many reports; based on accounting records, internal and external decisions are to be made by the company's management. Auditors, verifying controls in accounting records, auditors create a degree of reliance on those records. Organizations should keep physical and documentary evidence of all accounting records for good practice. Maintaining accounting records is the basic need of every organization, whether profit-making or non-profit-making. Every organization should have proper accounting practices and transparency in records to survive in the long run.

Public accounting practice exists as a daily recording of accounting and financial data. It controls recording and access to accounting records as accounting is a significant part of any organization, and it should not be manipulated and misused by others. Hence apart from recording, the organization has to look after the authorization part. For example, employees for data entry should not have access to bank statement views or other reports so that data cannot be misused. Every organization should practice proper practice as it is a basis for many external and internal reporting and decisions.

It is a systematic procedure and controls that are imposed by any accounting department to control the accounting records so that accounting records can be made reliable for all. It is a transparent view of the accounts and transactions of the company.

There are various controls to be imposed by a company or person responsible for the maintenance of accounting records. For example, Authorization control like bills to be signed by authorized person only or entry barring in storekeeping/ inventory room, or data access restriction to lower and middle-level employees. Accounting practice not only involves recording and access control but also requires recording as per law and generally accepted accounting principles or as per Ind AS or IFRS.

The use of this system goes beyond just private organizations. From documenting the transactions of an organization to maintaining public accounting practice the range of jobs available in this domain are wider than most jobs. Let us understand the different domains within which these jobs play a vital role.

#1 - Public

In public accounting practice accounts, related services and recording of accounting records are being outsourced to the independent firm as some of the financial documents and other information is required to be disclosed to the public. All control over accounting records is performed by public accountants who are CPAs (Certified public accountants).

#2 - Private

In private accounting practice, an individual expert is appointed by a business entity to record the accounting and other information properly and systematically. The person appointed is an expert; hence all controls are applied by that expert within the organization.

#3 - Government

The government usually employs State Auditors or other eligible persons to record, plan, budget, and forecast the accounting, financial, and additional information. Therefore, all controls over accounting records are imposed by persons employed by Government agencies on this behalf.

#4 - Auditing Practice

Auditors are called external accountants. They check the practices followed and imposed, and on that, they decide the degree of reliance on accounting records and then issue the audit report.

#5 - Financial

Financial accountants keep track of the company's financial transactions. They produce various financial-related reports for reporting to shareholders, tax authorities, the company law boards, SEBI, the government, and the public. Financial accountants impose all accounting and other controls related to financial accounts. They are experts like chartered accountants, company secretaries, stock intermediaries, and persons having a finance background.

#6 - Management

All records related to management like their decisions, presence, review, and implementation of plans by top management, appraisal policies, etc. Every company employs management accountants/ managers to review, impose controls, and monitor. In addition, management accountants create reports to be used internally for decision-making and other internal decisions.

#7 - Forensic

Forensic accountants are external accountants like auditors. However, forensic accountants verify from the point of view of detecting frauds and other misstatements in accounts. In addition, they verify controls in accounting records. The company appoints forensic accountants if it thinks there is significant fraud in or by the management.

Apart from the types of jobs mentioned above, there are a few types and controls following a private and public accounting principle. Let us understand them through the detailed explanation below.

#1 - Access Control

Only authorized persons can enter the accounts department and access physical accounting records like bills, bank statements, check issues, etc.

#2 - Authorization Control

Not all persons in the accounting department should have access to all data and reports. Authorization should be limited to the work of an employee. Also, entries are done by data entry staff to be authorized by senior staff.

#3 - Process Control

Each organization has a particular process for recording the bills and other records. For example, if the first bill is issued, goods are sent to the debtor. Then, if goods acceptance approval comes, the accounting entry of sales is to be done. So, there should be proper process control over accounting records

Let us understand the thought process behind installing accounting practice software and place impetus on its prompt usage through the examples below.

• Maintain employee attendance records, in-time, out-time to calculate proper salary and overtime, etc.
• Maintain fixed assets register, inventory records register, investment register, canceled cheques and records of cheques issued and deposited, shareholders' register, etc.
• Keep in record bills of purchases, sales, expenses, and other payments and receipts.
• Record of Payment to Creditors and receipts from debtors.
• On a test basis, perform a manual calculation of depreciation, etc.

Let us understand the importance of private and public accounting principle through the points below.

• Transparent view of accounting records
• To know the result of business.
• To keep the records of expenses, receipts, and payments.
• To create a base for other external and internal reports.
• To keep the faith of stakeholders.
• To follow current accounting practices and rules.
• To keep track of old records and compare them with current records and identify weaknesses, etc.

This has been a guide to what is Accounting Practice. Here we explain Accounting Practice jobs, types, examples, and their importance. You may learn more about financing from the following articles –

• Fund Flow Statement Format
• Rules of Accounting
• Accounting Policies Examples
• Assumptions in Accounting