Accounting is a broad field that involves recording financial transactions along with storing, sorting, retrieving, and summarizing the information throughout a variety of reports and analyses. There are various areas to explore as a result of economic, industrial, and technological developments. It is good to keep in mind that each area overlaps in some way due to their close nature, but it is still essential to differentiate between each. Let’s review five main areas of accounting.
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Auditing covers a variety of auditing processes, compliance, governance, and standards. Additionally, it reviews the judgement and decision-making of professionals along with regulations. When broken down into external versus internal, auditing could take on two very different standpoints. External auditing refers to the examination of financial statements by independent parties in order to lessen the bias that may be prevalent with individuals internally. Internal auditing evaluates a company’s internal structure and examines policies, procedures, authorization, and other controls.
Financial accounting is comprised of capital markets, corporate financial reporting, disclosure, earnings forecasting, management, investor response, and the quality of accounting information. In general, it involves recording and classifying business transactions and subsequently preparing financial statements that can be used both internally and externally. When thinking about it as a whole, the primary concern is in processing historical data. It would be too difficult if each company made up their own rules about what they needed to report and how to report, so the U.S. Generally Accepted Accounting Principles is the main source of guidelines.
In the managerial domain, accountants tend to focus on compensation systems, governance and controls, and performance measurement. Information is provided for use by internal users aka management. This branch closely looks at the needs of the management rather than strict compliance with principles. Furthermore, it involves financial analysis, budgeting and forecasting, cost analysis, and evaluation of business decisions. Where the financial branch focuses on external users, management emphasizes information from within the organization. There are ongoing debates on how to use cost information for management decision-making, resulting in new approaches such as activity-based costing and target costing.
Exploration of the tax branch will reveal how clients follow rules set forth by tax authorities. It includes tax planning as well as preparation of tax returns. Additionally, determination of income tax, tax advisory services, and other tax-related manners are evaluated. Specific topics to explore within this branch encompass tax policy, regulation, enforcement, transaction structuring, economic incentives, and the nexus of financial reporting. Whereas the financial specialization is determined by rules that expose financial position, the tax domain is based on laws. For example, in the United States, the Internal Revenue Service rules at the Federal level and state rules at the local level.
This division conducts forensic analysis of financial data and prepares bookkeeping reports from financial findings. Outside of analyzing data, analytical information is presented for litigation and individuals within this field may be required to testify in certain cases. As one of the most popular trends in the field today, main responsibilities include fraud investigation, claims resolution, and dispute resolution. Furthermore, forensic engagements also encompass bankruptcy, matrimonial divorce, falsifications of accounts, manipulation of inventories, and so forth.
These five areas of accounting show the various level of knowledge and focus required of the different branches. Many of these areas were formed as a response to the need for information from different classes of people such as owners, shareholders, management, suppliers, creditors, taxation authorities, and other government agencies.