What is Accounting Practice?

Explanation

  • 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 departmentAccounting DepartmentThe accounting department looks after preparing financial statements, maintaining a general ledger, paying bills, preparing customer bills, payroll, and more. In other words, they are responsible for managing the overall economic front of the business.read more 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 principlesGenerally Accepted Accounting PrinciplesGAAP (Generally Accepted Accounting Principles) are standardized guidelines for accounting and financial reporting.read more or as per Ind AS or IFRS.

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Types of Accounting Practice

The different types are as follows:

#1 – Public

In public accounting practice accounts, related services and recording of accounting records is outsourced to the independent firm as some of the financial documents and other information is required to be disclosed to the public. All controls over accounting records are performed by public accountants who are CPA’s (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 the 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 reportThe Audit ReportAn audit report is a document prepared by an external auditor at the end of the auditing process that consolidates all of his findings and observations about a company’s financial statements.read more.

#5 – Financial

Financial accountants keep track of the company’s financial transactions. They produce various financial-related reports for reporting to shareholders, tax authorities, company law board, SEBI, 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 accountantsForensic AccountantsForensic accounting is the investigation of fraud and misrepresentation.read more 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.

Other Controls

#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 of 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 entryAccounting EntryAccounting Entry is a summary of all the business transactions in the accounting books, including the debit & credit entry. It has 3 major types, i.e., Transaction Entry, Adjusting Entry, & Closing Entry. read more of sales is to be done. So, there should be proper process control over accounting records

Example of Accounting Practice

  • Maintain employee attendance records, in-time, out-time to calculate proper salary and overtime, etc.Maintain fixed assets registerFixed Assets RegisterA fixed assets register is a catalog of a business’s fixed assets, carrying details like their purchase price, depreciation values, and current location to document the course of their useful life accurately. It helps a business maximize the utility of its fixed assets such as machinery, building, vehicle, and the like.read more, 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 debtorsDebtorsA debtor is a borrower who is liable to pay a certain sum to a credit supplier such as a bank, credit card company or goods supplier. The borrower could be an individual like a home loan seeker or a corporate body borrowing funds for business expansion.
  • read more.On a test basis, perform a manual calculation of depreciationCalculation Of DepreciationThe Depreciation Expense Formula computes how much of the asset’s value can be deducted as an expense on the income statement. Formula for Straight-line depreciation method= Cost of an asset - Residual value/useful life of an asset.read more, etc.

Importance

  • Transparent view of accounting recordsTo 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.

Conclusion

Accounting practice exists as the daily recording of accounting and financial data as per generally accepted accounting principles 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. AuditorsAuditorsAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country’s local operating laws.read more, 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.

This has been a guide to what accounting practice is. Here we discuss accounting practice types and controls and examples and their importance. You may learn more about financing from the following articles –

  • Fund Flow Statement FormatRules of AccountingAccounting Policies ExamplesAssumptions in Accounting