trying to make
Financial Statements a safer place
Does Financial Accounting continue to be the true art of of black
magic? Or does it serve a useful economic purpose that is invaluable to
society in general?
Given the nature of this website we think you'll be hardly surprised to
find out that we are the true believers - we firmly believe that
advanced and basic financial accounting is vital for the business
economy we live in.
If that sounds all a bit pompous then let's make this a bit more simple.
For most (if not all) companies there are many parties (sometimes
called stakeholders) who are interested in how these companies have
Questions they want answers to are:
- Did the company make or lose money i.e. profit or loss
- Can the company continue to be in business? That is, do they have a
strong balance sheet? Are their assets greater than their liabilities?
- What is their cashflow like? Are they earning cash quicker than they
are spending it?
These stakeholders need financial accountants to prepare a set of
financial statements that tells them this information in a
And that's what it's all about. Let's delve in a bit:
What are Financial Statements?
Since you're interested in following an accounting career we're hoping
that you've either seen on tv or read in the newspapers when a major
company announces it results.
You'll get a headline like "The Widget Bank corporation today announced
it's full year results. A profit of $3.6 Gazillion which was a 300%
increase over last year".
Where did the
journalists get these
numbers from? The Financial Statements.
And who prepared them?
The financial accountants
And how did they prepare
them? They prepared the statements using what are known as
Accounting Principles - sometimes referred to as GAAP. Or even basic accounting principles. Hello?
Rather than sidetrack our discussion here - we've devoted a whole page
to understanding how accounting concepts and statements are put
together. But what stakeholders need to know is that companies present
their results on a consistent basis - that is, they are all playing
under the same rules.
Who are the Stakeholders?
Ah, those pesky people who dare to ask tricky questions and want
reliable information. Basically, they are defined as anyone who has
direct or indirect interest in how a company performs as they can be
impacted (good or bad) by that performance.
The usual suspects are the owners/investors (i.e. shareholders),
creditors (those who have lent the company money - which could be banks
or investors - and suppliers), the tax authorities (they don't like it
when they don't get paid), financial analysts & journalists,
employees/unions (do you want to work for a company that's going bust?)
and other government agencies. The bigger the company the wider the
stakeholder list gets.
Who is allowed to
OK, we know it's the financial accountants but not everybody can be
one. You need to be trained in how to prepare them. And that's what
this website is all about. Telling you which certifications you need to
get to allow you be involved in Financial Accounting.
What's Difference Between
and Managerial Accounting
Perhaps it's the right time now to talk about the key differences.
Management Accountants do not specialise in financial statement
preparation and do not have the same (if any) GAAP training that a
chartered or certified practising accountant (CA & CPA's) will
It's not their gig which is fair enough.
This brings up what has been traditionally been seen as the difference
between the the two areas. Financial = External Reporting, Managerial =
We personally think this is nonsense. Many textbooks, Wikipedia etc.
still argue that Financial Accounting is for external use only and
Managerial accounting is exclusively for internal use.
We say that's just plain out wrong.
When larger companies present their financial statements, there is
always complementary managerial accounting analysis which provides
greater levels of in depth details. And that data is used extensively
by the stakeholders.
Also, the financial bean counters work closely with the business to
ensure that they fully understand the statements and what's in them.
The directors/senior management of the company have to put their name
To say the directors don't use these them for anything other than
external use seems a bit far-fetched. Of course they use to them
understand - at a high level - what's happening in their business. Last
time we checked the Directors/Senior Managers were internal to the
So, just to recap, it's the art of preparing financial statements that
are used extensively by internal and external parties to make decisions
about a company.
Given the importance and difficulty of preparing them, Financial
Accountants need to be appropriately qualified to carry out the job.