Introduction to Accounting Framework and Role of Accountant
The theoretical framework of accounting means the set of frameworks, methods, and assumptions that are used to study and apply accounts in financial situations. This also refers to the study of the official changes that affect financial framework and financial reporting by authorities.
An accounting framework is a set of norms that are used to measure, recognize, and present the information that appears in an entity's financial statements. A conceptual framework is defined as a set of ideas and objectives that leads to the creation of a persistent set of rules and standards.
The theory of accounts comprises both the study of historical accounting methods and also the accounting practices that are used in the current financial applications. It also examines the official changes that are made to the financial framework and financial reporting by authorities.
A person, who carries out such an accounting process individually or in any organization, is referred to as an accountant. An accountant is a professional who carries out accounting activities such as audits and financial statement analysis. This process can also be called account analysis. Accountants get employed with any accounting company with an internal accounting department. Sometimes they start their practice individually.
What is the Role of an Accountant?
An accountant carries out all financial activities that are related to the accuracy, collection, analysis, recording, and presentation of financial operations. Generally, the accountant also handles all the third parties, like vendors, customers, and financial institutions. He/she should also be responsible for holding other administrative functions in an organization.
The other roles of an accountant include statutory auditing, internal audit, and taxation. Some of the functions of an accountant are maintaining a book of accounts, statutory audit, internal audit, budgeting, taxation, investigation, managing advisory services, and other roles to act as liquidator, cost accountant, arbitrator, etc.
Roles and Responsibilities Accountant
Now, if we talk about the major role of an accountant in an organization, he plays a significant part in its growth and long-term profitability just like other key stakeholders.
The main responsibility of an accountant is preparing asset, liability, and capital account entries by collecting and analyzing account information.
The basic role of an accountant includes establishing accountability of all the assets under an individual’s control. The image below gives an idea about the role of an accountant.
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Accountant Roles and Responsibilities
To prepare accounts and tax returns
To maintain payrolls and control the income and expenditure
To auditing financial information
To collect and present reports, budgets, business plans, and financial statements
To analyze accounts and business plans
To provide tax planning services about current legislation
To finance forecasting and risk analysis
To deal with insolvency cases
To negotiate the terms of business deals and moves with clients and associated organizations
To meet and interview clients
To manage colleagues, workloads, and deadlines.
Role of Chartered Accountant
It is the responsibility of a chartered accountant to give advice, audit the accounts, and provide accurate information about all the financial records. This might also include financial reporting, forensic accounting, auditing taxation, corporate finance, business recovery, insolvency, or accounting systems and processes.
It is the chartered accountant’s responsibility to implement the accounting systems, prepare monthly financial reports, control the master data of the general ledger, and ensure compliance with the state revenue service.
Most of us would have observed how our parents work and receive their salaries. If we have parents working in the accounting team of an organization or running their business, we will even be familiar with certain accounting terms!
A theoretical framework usually consists of a structure that includes methods and theoretical assumptions which can facilitate the execution of an idea or task. In a financial situation, theoretical frameworks are used to devise accounting norms that can measure, analyse and present financial data as it appears in an organization’s records and reports. Setting out financial objectives also helps create a standardized set of accounting rules and regulations adhering to a strong conceptual yet practical framework.
Theory in accounts today comprises a combination of accounting methods used since historical methods and modern-day financial applications and methods. A qualified professional who sets up, analyses and manages accounting systems and processes for an organization is known as an accountant. They might be employed with a firm that has a robust finance team or is in the process of setting up one. Experienced accountants might also choose to have their consultancy firms. Traditionally, accountants have been responsible for carrying out internal financial audits and analyzing financial statements and reports for the organizations.
FAQs on Accounting Framework: The Accountant's Role
1. What is an accounting framework and why is it important for a business?
An accounting framework is a structured set of rules, principles, and concepts that govern the preparation and presentation of financial statements. It is crucial because it ensures that a company's financial information is consistent, comparable, and reliable. This standardisation allows investors, management, and regulatory bodies to accurately understand and evaluate the financial health of the business.
2. What are the primary roles and responsibilities of an accountant in a business?
An accountant performs several critical functions to manage a company's financial operations. Key responsibilities include:
- Maintaining Books of Accounts: Accurately recording all financial transactions.
- Auditing and Compliance: Conducting internal audits and ensuring compliance with financial regulations and tax laws.
- Budgeting and Forecasting: Preparing budgets, analysing financial performance, and forecasting future trends.
- Financial Reporting: Preparing key financial statements like the Balance Sheet and Profit & Loss Account.
- Advisory Services: Providing insights to management for strategic decision-making based on financial analysis.
3. What are the fundamental principles that form the basis of accounting?
According to the NCERT syllabus, accounting practices are based on several core principles to ensure objectivity and uniformity. The main ones are:
- Revenue Recognition Principle: Revenue is recorded when it is earned, regardless of when cash is received.
- Expense Recognition Principle: Expenses are recorded when they are incurred to generate revenue.
- Matching Principle: This principle dictates that the expenses related to a revenue-generating activity must be recorded in the same accounting period as the revenue.
- Cost Principle: Assets are recorded at their original purchase price (historical cost).
- Objectivity Principle: Financial statements must be based on verifiable, objective evidence rather than subjective opinions.
4. Beyond bookkeeping, why is a professional accountant essential for a company's strategic growth?
While bookkeeping is a core task, a professional accountant's true value lies in their strategic contribution. They are essential for growth because they interpret financial data to provide actionable insights. This includes identifying opportunities for cost reduction, analysing profitability of different products or services, conducting risk analysis for new projects, and ensuring the company has a sustainable financial structure for long-term expansion. Their forecasting helps in strategic planning and securing investment for future growth.
5. How does the role of a Chartered Accountant (CA) differ from that of a general accountant?
The key difference lies in their qualifications, scope of work, and legal authority. A general accountant typically handles the day-to-day financial operations within a company, such as maintaining ledgers, managing payroll, and preparing internal reports. A Chartered Accountant (CA), on the other hand, is a highly qualified professional with statutory powers to conduct external audits, certify financial statements, and represent a company before tax authorities. CAs often handle more complex tasks like corporate finance, forensic accounting, and high-level advisory.
6. What are the key skills, both technical and soft, required to become a successful accountant?
A successful accountant needs a blend of technical knowledge and interpersonal abilities.
- Technical Skills: These include a strong understanding of accounting principles, proficiency in accounting software, knowledge of tax laws, financial analysis, and data management.
- Soft Skills: Crucial soft skills include strong analytical and problem-solving abilities, attention to detail, effective communication to explain complex financial information, time management, and high ethical standards.
7. What are considered the main 'pillars' or components of a conceptual accounting framework?
The 'pillars' of a conceptual accounting framework are not literal but represent the fundamental ideas that support it. These typically include:
- Objectives: The primary goal of financial reporting, which is to provide useful information for decision-making.
- Qualitative Characteristics: The attributes that make financial information useful, such as relevance, reliability, comparability, and understandability.
- Elements of Financial Statements: The core components that are measured and reported, namely Assets, Liabilities, Equity, Income, and Expenses.
- Recognition and Measurement Principles: The rules on when and how to record and value the financial elements in the statements.
8. How would a business apply the accounting framework in a real-world scenario, for instance, when recording a sale on credit?
Imagine a business sells goods worth ₹10,000 on credit. The accounting framework guides this transaction as follows:
- The Revenue Recognition Principle dictates that the ₹10,000 revenue should be recorded immediately upon sale, not when the cash is received.
- The transaction creates an Asset called 'Accounts Receivable' of ₹10,000, which is an element defined by the framework.
- Simultaneously, the Matching Principle requires the business to record the 'Cost of Goods Sold' in the same period to accurately calculate the profit from this specific sale.
- This entire entry is based on an invoice, satisfying the Objectivity Principle.
