Accountant / Accounting
Encyclopedia of Business Terms and Methods, ISBN 978-1-929500-10-9. Copyright © 2012 by Marty J.Schmidt. Revised 9 January 2012.
The Meaning of Accountant and Accounting
The American Accounting Association (AAA) defines accounting as the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information. An accountant is a practitioner of accounting (or, equivalently, accountancy).
This item further defines accountant and accounting in the context of related terms including:
• Account | • Cost accounting |
Accountants have the primary responsibility in the organization for managing, correcting, and reporting the organization's accounts, hence the name of the profession.
• Accountant Roles
• Accountant Education, License, and Certification
Accountant Roles
In a very small company, an accountant or accountants may perform all of the accounting jobs described in this section, but in medium and large companies, different accountants will be responsible for financial accounting, managerial accounting (or management accounting, or cost accounting), and internal auditing. There are also public accountants, who perform as consultants for a number of clients.
The term financial accounting usually means providing information to those outside the entity (such as stockholders, regulatory organizations, and creditors). A main focus in financial accounting is the preparation and publishing, quarterly and annually, of the organization's financial statements, primarily the ...
- Income statement (or statement of operations, profit and loss statement).
- Balance sheet (or statement of financial position).
- Statement of changes in financial position (SCFP, or Financial cash flow statement).
- Statement of retained earnings.
In the role of financial reporting, financial accountants primarily look backwards in time, reporting financial history.
By contrast, the term managerial accounting (also called management accounting or cost accounting) refers to this information prepared for those inside the entity. The practice of managerial accounting may be concerned with
- Preparing capital and operating budgets, administering the budget process, and reporting (internally) performance against budgets.
- Evaluating the performance of managers and business units against other business plans and benchmarks.
- Analyzing and reporting on financial problems and business situations.
In these capacities, managerial accounts look both forwards and backwards in time.
Accountants also perform the role of auditor, with internal, external, or government auditing responsibilities:
- Internal auditors report to their own company's management. They are primarily responsible for checking for fraud, waste, and mismanagement of funds, but they may also be responsible for monitoring, evaluating, and recommending the organization's internal controls, and the organization's compliance with government regulation.
- Government auditors are public sector employees who review and monitor government agencies and other government organizations, but also private sector businesses that are subject to government regulation (e.g., banks) and taxation (almost all private businesses).
- External auditors are professional consultants, hired by private businesses to review their accounting practices and accounting reports and issue or publish auditor's opinions as to whether or not the company's practices and reports conform to Generally Accepted Accounting Principles.
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Accountant Education, License, and Certification
In some small businesses, accounting jobs may be performed by an individual who started as a bookkeeper or in another clerical or administrative role, and over time "worked into" the accounting position. Overwhelmingly, however, in government organizations and most private businesses, accounting positions require at least a bachelor's level college/education (typically 4 years), with a degree in accounting, or a degree in business with a concentration in accounting. Some positions require a Master's in Business Administration (MBA) with a concentration in accounting.
Accounting job positions and roles also typically require professional licensing and/or certification beyond the bachelor's degree.
- In the United States, the best known accounting certification is the designation Certified Public Accountant (CPA). Individual states administer the certification, each with its own requirements for post-university education, examinations, and professional experience. By law, any accountant filing a report with the US Securities and Exchange Commission must be a CPA.
- Other accounting certifications recognized in the US include Certified Management Accountant (CMA), Certified Internal Auditor (CIA), Accredited Business Accountant (ABA), and others.
- In the United Kingdom, CPA refers to Certified Practicing Accountant. United Kingdom accountants may also be recognized as Chartered Accountants, Chartered Certified Accountants, and still other designations.
- These titles and variations on them are also used in Canada, Australia, New Zealand, and other countries.
In all countries, the most stringent requirements for education and certification apply to accountants who sell services to the public, first, but also to those who deal with certain accounting specialties (insolvency,or taxation, for instance), and to those who file reports with governments or government agencies.
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