Global Accounting

The Global Accounting Standard

The International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP) are the two sets of standards and procedures used by companies to compile their financial statements. GAAP is the set of standards used in the United States while IFRS is used internationally by almost all other major economies. The convergence of these into one set of globally accepted accounting standards has been a major topic of discussion. There are benefits to having everyone follow the same set of standards internationally along with some challenges.

There are several advantages of having one uniform accounting standard globally. A major benefit is being able to easily compare companies that are located in different countries. Currently, an investor or creditor that is considering an investment or checking the credit risk of a company may have issues due to differences in the accounting standards of the companies. An investor must reconcile two companies’ financial statements into the same basis of accounting in order to compare them. Different reporting standards can be deceiving for creditors causing two companies having similar success to appear very different than one another. Having one set of global standards would also improve the international expansion process. Many companies would advance from expanding into other countries but the cost of complying with a different set of standards and changing to meet requirements holds them back. “In some cases, this would nearly double the company’s accounting costs.” Many are losing out on this opportunity due to discrepancies in accounting standards. One global standard would eliminate these discrepancies. One standard setting body would make the international rules instead of each country having its own standard setting body, relinquishing the disparity among countries.

Merging the two into one set of standards has many benefits but with all of the changes also come challenges. In order for this to work all countries involved have to cooperate and be able to adjust. “Countries have different starting points, different business cultures, different regulatory environments, different financial reporting objectives, and different legal systems making it difficult for standard setters around the world to agree on the same accounting alternative.” Even if accounting standards become the same in each country laws and other regulations would not be which would hinder the usefulness of a global standard. Cultures, religion, and lifestyles vary in each country which cause some standards to make sense in one country and not translate well into another. There have been attempts in the past to have GAAP and IFRS be written in the same words and phrases. This did not work smoothly; words are interpreted differently causing descriptions to be interpreted differently.

Some disagreements between the standard setters for IFRS and GAAP have stopped them from coming up with one global set of standards. Different views on financial instruments, leasing, revenue recognition, and insurance contracts have halted the convergence. Although they can’t agree on all standards and procedures they are in the process of removing as many differences between the two standards as possible. The Norwalk Agreement was signed in 2002, stating the commitment of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) in working together to make their existing financial reporting standards compatible and to coordinate their future work programs to ensure once achieved, compatibility is maintained. This agreement is still in place today and has helped get rid of several differences between the two standards.

Whether it is through convergence of the two standards or the United States deciding to adopt IFRS, having one global accounting standard is the goal of many organizations. The various challenges and short term disadvantages make it difficult for each country to agree on one standard. Discrepancies do exist between standard setters and with change always comes adjustment. One global standard may or may not be plausible with all of the differences in culture and law among countries. Since the signing of the Norwalk Agreement in 2002, substantial progress has been made toward making IFRS and GAAP more compatible. We will see if this progress continues and if standard setters can one day agree on one global set of accounting standards.

Small Business

Small Business Accounting – Cash Flow

Accounting and Cash Flow Management

I will first encourage everyone to use some accounting software to record all money coming in and going out. This will be how you create invoices for your customers. You should always have contact information for your customers which includes an email address.

Once you have an email address you will then be able to email them an invoice. On the invoice should be a way for them to pay you by debit or credit card. There are fees involved with collecting money this way. You can shop around for the lowest rates and once you have a processor you can now accept these forms of payment. Your credit will affect the rate that some places will charge you to collect your money.

How does this help? Once your customer gets their invoice all they need to do is click the pay button and it will bring them to where they enter information and press pay. Once that is done you should see the money in your bank in about 5 to 7 business days. You will see your average collection time drop if you are still mailing bills and waiting for a check in the mail. Think about the time and money in postage saved when you email bills and have a click and pay option on the invoice.

There is one thing to mention. If you are collecting a very large payment I would suggest using the ACH method where the customer gives you the information from a check and the money is directly taken from the checking account and put in your bank account. I know that Intuit offers this as a service and the fees are a few dollars per transaction. It is worth it when dealing with larger transactions. You may want to even consider charging a processing fee for people who pay this way. A few dollars will not be a big deal to most people. This will help in covering the costs of accepting these forms of payment. Once you have been with a processor you may be able to negotiate better terms.

Accounting Challenges

Accounting Challenges of the Third World

n many third world countries today there is not only an absence of useful resources and governmental control but also effective and efficient accounting systems. Today the third world is broken into three groups, Newly Industrialized Countries (NIC) More Developed Countries (MDC) and Least Developed Countries (LDC). NICs are between a third world and industrialized nation; in these countries you would typically see a jump in exports as well as population growth in urban areas. LDCs and MDCs are fairly similar but you can expect MDCs to have a higher economic growth rate than LDCs, which are lacking in all areas that help a nation grow economically.

In terms of accounting, countries like those described above often lack the internal control that allows developed nations to work effectively and get work done in a timely manner. Internal control ensures the achievement of an organization’s goals in areas pertaining to effectiveness, efficiency and accurate financial reporting. Due to the shortage of skilled workers it is difficult to employ a qualified staff, leading firms in underdeveloped nations to look for outside accounting professionals. Many MDCs and virtually all LDCs lack the necessities like textbooks and supplies in order to educate their youth in all areas, not just accounting. In these countries youth tend to stop their education in favor of working and other tasks to help heir family obtain food, water, shelter etc.

Another factor contributing to ineffective accounting practices in the third world is that complete, reliable and timely information is often absent leading to confusion and incorrect statements. The inability to match financial assets and liabilities in terms of amounts and timing is a fundamental cause of liquidity and solvency problems, which can become full-blown fiscal crises. The failure to produce trustworthy statements can scare off potential trade partners and create a cycle of poverty in the third world. With a scarce amount of resources available and few resources coming in a government’s ability to take care of its people grows smaller. Governments in developing nations often use out dated accounting methods, like the cash method. Similar to private firms, governments are unable to hire an effective workforce to preform a nation’s numerous financial obligations.

To find solutions to these challenges it would be helpful to take a look back at the history of accounting in developing nations. The main, overarching problem in these countries is that they continue to use outdated accounting methods that make it very difficult to create proper financial statements and have outside firms check and understand their work. The lack of qualified accounting professionals and internal control remains a roadblock to financial transparency and does not allow the industry to progress in the third world. I believe putting a higher level of importance on accounting issues within developing countries would boost the number of people interested in accounting related jobs, thereby reducing the number of unqualified professionals in the workforce. In doing so a country would need to allocate money away from another area or problem and put it toward developing effective accounting procedures. Once the system is in place all sectors of a nation will be able to reap the benefits of “being able to follow money” and potentially new trade. Along with eliminating corruption, an efficient accounting system allows a government to effectively designate money for social programs that can help their people in many ways, including escaping poverty.

Additional solutions to poor accounting practices in developing countries revolve around raising the level of importance regarding the issue. Like any other activity, once people are aware of accounting’s importance and its ability to make them money to support their families their interest level in the subject will surely rise. This can help cut down on the number of unskilled workers in accounting jobs but also can give the youth and other interested parties the opportunity to learn from qualified professionals and teachers. I believe the greatest investment a country can make is in their youth. By educating children on the importance and basics of accounting it can lead to more youth interested in the subject that will likely pursue it as a profession. Educating citizens on accounting will undoubtedly allow the country to adopt modern accounting techniques until they are in accordance with GAAP. This will benefit the country on a global scale and although would certainly take time it can raise the level of a country from NIC to fully industrialized nation.

Effect of Globalization

The Effect of Globalization on the Education of Accounting

Globalization is the development of worldwide integration. More specifically, it is the process of combining the economics, societal values, and cultures through communication and trade. Because of this, it is a key factor to be aware of all of the world’s environments and motives. The idea of globalization comes with several positives and negatives. Positives including the fact that the world will be more unified. However, people fear that this will bring the world to a more communistic society with sweatshops and degradation. Globalization is seen as inevitable and impossible to prevent, but not everyone approves of the changes occurring. It is affecting so many industries and studies as a whole. The education of accounting is a prime example of a study facing the many effects of globalization.

To understand how globalization is affecting the education of accounting, the ideas of IFAC and IAESB need to be understood. IFAC stands for the International Federation of Accountants. They are a group of 157 members from over 120 countries made to represent the 2.5 million accounting professionals. They serve to the public’s needs and contribute ideas to make the global accounting industry stronger than ever.

They are the speaking bodies when considering international unity of standards amongst all countries in the world. The IAESB, the International Accounting Education Standards Board. This group is more focused on the implementation of a globalized education standard. They find value in advancement on contemporary issues relating to the accounting profession as a whole including the development of education (Accounting Education).

The accounting education system has been drastically changing due to the effects of globalization. The big effect that this is causing is a large gap between principles and the education of them between varying countries (GAAP vs. IFRS). Because of this, concepts are being reevaluated to be understood and used as policy to be used internationally. To be able to revise the education of accounting, many more requirements are being enforced in institutions. The required amount of credits to be able to hold a Certified Public Accounting license has been shifted from 120 to 150 credits, forcing many accountants to attend graduate school to be able to fill the credit requirement (Globalization). More courses of study are being added to the list of accounting classes that need to be taken to graduate with a B.S. in Accounting. It is predicted that foreign language and international requirements will now be a part of the change so that professionals can obtain more knowledge of the integration of the worldwide economy. Because of this, textbooks are constantly being revised and sold as new. This is also putting a strain on the professors of accounting. Years ago, international economy and globalization were not emphasized in their studies and in their professional careers. Therefore, they are not going to be able to teach on account of this information that they have a large gap in their knowledge of the subject. This is all to be able to prepare students for the increasing difficulties of the CPA exam that are shifting importance to globalization (Nolan).

Globalization is not only causing students to feel the changes made to the accounting education system, but professionals currently in the field as well. These changes in the focus of accounting and international standards are hindering at the current accounting professionals and how they develop their methods to current lines of work. They already went to school and hold their CPA license, yet they are behind in the knowledge that is being taught now. This is going to create a higher demand for the younger generation accountants and a lack of need for the older generation. It is also going to hinder the demand for accountants who studied in the United States because of their lack of specific knowledge towards the principles of the IFRS. In the near future, outsourcing will be the most efficient and effective way to hire accountants strictly on their knowledge of international accounting standards (Nolan).

Globalization is directly affecting how the United States is evolving their education in the accounting profession. Because of the inevitable change to the international accounting standards, the United States has been shifting their education requirements to be able to obtain a CPA license. This is directly hurting not only students of accounting but current professionals in the industry because of their lack of knowledge in contemporary, international accounting standards. Although these changes seem to be demoting those involved in the current accounting study, it is all about evolving the standards of accounting to run businesses to the most efficient and effective point in which they can.

Financial Planning

The Business of Financial Planning

We have learned from the economic crisis of 2008, to take care of where we invest or what we do with our money. It also taught us that in times of doubt, consult your advisor. The economic downfall in 2008 also opened opportunities for expert financial planners and newbies who wants to help people and business maximize their resources.

If you are wondering why you or your business needs financial planning, we have enlisted the perks here.

Financial planning enables businesses or individuals to allocate the right amount to the right area that needs improvement or more investment in a timely manner. This minimizes risk-taking and bad investments. Efficient financial planning would then eventually lead to better revenue and effective cost management.

Financial planning presents the costs and gains of a company or individual in numbers, giving them a clearer view of what they will be investing in. This makes it easier for decision makers to go or stop a contract or project.

A financial plan is prepared annually. This financial forecast explains how much the business or individual should expect and when to expect it. This not only shows how long the wait is going to be, but also the quantity of its profitability. Every month, a financial plan is also done to compare the annual plan prepared earlier to see if the target is being met, exceeded or otherwise. This warns the business owner or individual of possibilities and posed threats in the investment, and if it’s time to give up or not yet. Although it is not always correct, as there are so many things that could affect the business’ financial status, financial planning and management makes it easier to see what is and what can be.

While some people or business owners would want or need a financial planner as they can do this on their own, there are some who would need a planner’s help to get the load off their backs. Either way, when looking for a financial planning company to handle this hefty job, here are the things you have to consider.

License – find a licensed or certified financial planner, which signifies their abilities and credibility. Do not just jump on the first firm that comes your way in a desperate move to find one.

Pay structure – there are two major pay structures your planner may be a part of: fee-based and commission-based. Nothing of the two is better than the other; it is really up to the company or person what he/she prefers. There are also planner who, like free-lancers, can be paid by the hour or when you only need them

Advise over promises – look for financial planners who can give you sound advise about your ventures and the issues it faces. Planners who over-promises profitability may only disappoint as a lot of things can happen in the financial world that can affect its performance anytime.

Business

Steps To Choose The Best Liquidator For Your Business

Losing business market or facing financial difficulties can lead to liquidation of a company as a way of reducing losses. With voluntary liquidation, it could be easy to distribute what remains, but this process might not be as easy for forceful liquidation and a professional liquidator comes in handy to help ease it out for you. There are so many requirements in the process and it can get overwhelming, especially for you the business owner, hence there is an importance of getting an insolvency practitioner to help you through the tedious process.

With so many firms now offering company liquidation services, it is not only important to find a professional liquidator, but it is also important to find a liquidator who has what it takes to make the process easy and as pleasant as possible for you. A few steps can help ensure that you select the most suitable liquidator for your business.

Step 1 – Compare a few prospective companies

The thing is that financial matters can be very sensitive and you need to be able to work very closely with the liquidation service provider. Trusting your gut instincts as far as the services are concerned is what you should strive for. You need to be very comfortable with the liquidator to have a pleasant experience. It therefore helps to start by making a list of prospective companies offering the services and going the extra mile or speaking to them so you are able to gauge which one works best for you as far as trust goes. The way they handle you, the background and experience should all make you feel comfortable and content with what they are about to do for you.

Step 2 – Consider expertise in your business sector

Liquidators can work with individuals while others specialize with limited companies. What you need to make sure that your liquidator understands your business and its market of operation. When talking to the potential companies for the services, you can easily tell what sectors they are experienced in and gauge how beneficial they will be handling your situation. Ask as many questions as you possibly can when conducting the interviews and listen in to the responses you get. You can tell a lot about the competence of the liquidator in your sector even over the phone.

Step 3 – Look at the experience

Does the liquidator have any experience in liquidation? What strategies does he put in place and how many processes have they handled successfully? Yes is it true that even start up liquidators can still do a great job for your business during liquidation, but you will feel more comfortable when you know that your process is not a trial one for the company especially when you want it to end as fast as possible. A good liquidator needs ample experience to know the tricks of the trade, especially when dealing with tough agencies and professionals working with creditors. Experience makes liquidators competent and you also should ensure that your liquidator is licensed so you do not end up dealing with brokers.

Accounting Outsourcing

Is Accounting Outsourcing Right For Your Business?

Companies today increasingly pay more attention to growth-oriented agendas where outsourcing has become a considerable option for transforming operations to enhance company profits. Bringing scalable expertise into an organization by accounting outsourcing helps to shed non-core activities and gradually reduce labor costs. Organizations that outsourced finance and accounting functions have discovered a number of business wide benefits. Such benefits have liberated organizations to focus on strategic priorities and key essentials thereby boosting company growth.

Functions of Account Outsourcing

The ability to execute a company’s growth strategy which includes supervising a product launch, a merger or managing organic expansion is only a part of outsourcing. The process is a transformational approach that has made organization-provider relationships more efficient to generate high performance. Organizations obtain finance and accounting functions that enhance office performance and incorporate technical expertise to forge a durable communications system.

Monetary Supervision

Finance and accounting is one of the principle departments of a firm therefore it is important to merge growth initiatives to such a function. A qualified third party organization that can decipher financial documents and ensure proper ledgering is advantageous for any company. This helps a company obtain a fundamental system that accommodates commercial acquisitions and innovative ventures into the mainstream market. Outsourcing enables a company to indulge less in manual intervention and instead adopt computing supervision for a greater precision during transactions.

Enhanced Work Flow

Obtaining comprehensive and standardized management information is another benefit of account outsourcing. Since many companies suffer from corporate transparency, financial governance is a must for any organization to feel confident about the overall business performance. An outsourcing agency that supervises financial decisions within a company is a boon especially since this helps the enterprise identify and rectify problematic zones. An outsourced F&A environment ensures proper discipline and regulation required for a company’s progress.

Sales Benefits

Additional benefits to outsourcing are the improved relationships that companies share with vendors/suppliers and also with customers. Allowing the company to dedicate its time to more strategic pursuits by enhancing company capital and a systematic work flow are operational improvements of account outsourcing. Financial advice offered by such experts is of great assistance especially when the company is made to completely capitalize all potential tax benefits for increased annual profits.

Conclusion

Accounting outsourcing arrangements enable an enterprise to value innovation and adopt a business strategy that utilizes financial expertise and computing technology in a methodological manner.