Comparing Planning and Accounting - Why is it Important?

The 1994 movie, Stargate, represented a gate that led to two dimensions. In today’s time, the stargate opens to accounting on one end and planning on the other.

Accounting starts today and goes back to records of the past with increasing detail. Planning, on the other hand, starts today and heads straight to the future with increasing summary and aggregation.

However, many find the two to have similar looking tables. The accounting system has an income statement, a balance sheet, and a Cash Flow statement. The business plan has these three statements “proforma” or projected results. Although these three statements are almost identical in form, presentation, and order of appearance, the information they carry are not the same.

This conceptual difference is important as they don’t mix well. Planning approached from an accounting point of view is not good. Accounting is done by reporting from a database of transactions.

Planning is steering the business to a future direction. Planning is concerned with decision-making, progress tracking and change management. Though accounting is also about information and management, there are legal considerations related to it. Accounting also has to go into very deep into detailing while planning requires balance between concept and detail. There are times when too much detail is not productive.

Accounting has to be accurate. There is no room for mistakes and errors. This is because taxes and dues to the government are derived from the figures. Planning, however, can be wrong. In fact, it is often wrong. There is always room and chance for corrections. This is because it deals with assumptions that aim to steer the company to a certain direction. And assumptions need constant reconstruction until the best direction is achieved by a company.

Article Source: Business Insider - Planning vs. Accounting: 2 Different Dimensions. And Why You Care »

Why You Should Learn Accounting

Every business is started with money, time, and effort. Therefore, like a flower, it needs to be nurtured, cared for, and showered with attention. Everything has to be done in order to ensure that it grows and matures and eventually, bloom and bear fruit. If the opposite is done, the business will go down the drain.

That is why it is very important for a business owner to take matters seriously and understand the reasons why one has to be familiar of the business. Here are a few tips of what the business owner must do in order to ensure the life of the business.

First thing is that the owner should really learn the basics of accounting. Terms such as accounts receivable and accounts payable, accrual and cash basis, and others have to be familiar to the business owner.

Another thing to remember is that the owner should deal with the situation of the business at face value. Issues and problems should not be set aside or just assigned to any employee. By not doing so, the owner will not only see the problems but also the advantages and potentials for growth of the business. The fear of not being able to comprehend the figures is only going to last the first few days. When you’ve gotten the feel of the business, everything will fall into place.

Money matters should not just be put on the shoulders of the company’s accountant. If there is one who should know everything, it should be the owner. Letting the accountant have the key to everything could promote or encourage conspiracy and put your business in jeopardy. That is the reason why there are celebrities and professionals who end up crying in public because their accountants have fled with their money. Also, when there are discrepancies in the taxes paid to the government, it is the business owner who is chased and not the accountant.

Changes To Accounting For Employee Benefits Proposed

It cannot be denied that the area where companies spend most on is its employee benefits. Among these benefits is the pension plan. In the Philippines, this particular benefit exposes the company to both actuarial and investment risks. An example of an actuarial risk is when the benefits of an employee are seen to be greater than expected by the time the employee retires. An example of an investment risk is when a company funds a pension plan. And when the fund does not perform well, the company is still obliged to pay the said plan.

Accounting for defined benefit plans such as the pension plans is complex and entails costs for companies. That is why these companies hire the services of an actuary.

Based on rules, actuarial gains or losses or changes to pension obligation can be accounted for in three ways namely: charge the entire change to profit or loss, charge the entire charge to other comprehensive forms, and charge a portion of the change to profit or loss using the “corridor system”.

It was proposed on April 29 last year by the International Accounting Standards Board (IASB) the changes to the accounting of employee benefits. These include removal of the “corridor mechanism” in accounting for long-term employee benefits, new rules to distinguish long-term and short-term benefits, and additional disclosure requirements.

Among these changes, the removal of the “corridor mechanism” is the most significant. Without it, the changes in fund values will be recognized over the average remaining service lives of the employees.

Also, all changes that occur in the value of long-term employee benefit plans will already be recognized as they happen in profit and loss and in comprehensive income.

The difference between long-term and short-term benefits is based on the time the employee is expected to receive the benefit. Therefore, under the current rule, if an employee is able to use a benefit at any time, the obligation is considered a short term benefit for the employee. But under the proposal, this benefit will be considered a long-term liability.

Additional disclosure requirements have also been proposed. These include characteristics of the employee benefit plan and the risks that may arise from the said benefit plan which may include sensitivity analyses and multi –employer plans.

The IASB is expected to publish the final amendments to this proposal by the end of March 2011.

News Source: BWorldOnline.com »

Accounting Changes To Push For Progress

Businesses compete for their market. And with the many companies that come out these days, the competition even gets tougher. Companies and businesses therefore have to strengthen their strategies and do everything in order to attract their prospective clients.

This is one of the many reasons why the leaders of the accounting profession have come to a decision to implement the International Financial Reporting Standards or IFRS by January 2012. The IFRS is part of their goal for change. However, the problem seen is how they will get to that goal.

“It's not a question of where we should go but of how [we should get there] and at what pace," said Deputy Finance Minister Sergei Shatalov.

The IFRS is seen to allow accounting professionals to participate in the formation of a global financial system.

However, the biggest problem seen here is that even if there are only several months remaining before the implementation of the IFRS, there is still no Russian translation considering that the target capital is Moscow.

“There is need for official guidance, official policy and official understanding for the public," said Kirill Altukhov, a partner at audit and advisory firm KPMG in Russia and the CIS.

Furthermore, the impact of the mandatory implementation of the IFRS will only be beneficial to the minority publicly listed companies. All of which have already started using the new system.

On the other hand, Surgutneftegas, has submitted recently its accounts under US generally accepted accounting principles of 2001. Its value has reached $33.6 billion. However, the company has not yet been publicly listed. And that is the problem seen now with the implementation of the IFRS.

Another obstacle to the implementation of the IFRS is the lack of trained professionals. Professors and teachers are also having arguments on the issue.

Despite the benefit of implementing the IFRS, the problems have to be settled first before moving on to the next stage.

News Source: The Moscow Times

Accounting Shift Clears Past and Present

Business will always have losses. No matter what the industry, it is just part of a business’ life cycle to incur losses and do everything it can to earn those losses back. Even the biggest multinational companies are not spared from this naturally occurring event.

However, a more interesting accounting change has been born. It is called mark-to-market accounting. Today, high profile companies are beginning to move towards this method and in effect, they no longer have to report billions of dollars in losses.

The accounting change works in a rather simple way. Companies are allowed to change their past financial accounts retroactively and make it seem like the losses were incurred in the previous years. AT&T, Verizon, and Honeywell did the same. AT&T had a total of $17 billion in losses. Verizon had losses of $22 million dollars while Honeywell had $7.5 million dollars in losses. Without the accounting change, mark-to-market accounting, the losses would have been spread over many years in losses. At least, by this way, the losses are traced sooner and the effects are not as widespread.

The mark-to-market accounting system is a response to what has been aspired and that is to have converging global accounting standards.

Jonathan Waite, Director of Investment Management Advice and Chief of Management Advice, said, “Effective implementation of some of their investment and hedging strategies would work better without the smoothing mechanisms.”

This has been agreed and seconded by Verizon CFO, Fran Shammo, saying that the new accounting policy makes financial reporting easier to understand and it allows for transparency in operations.

Businesses will never prosper if the accounting system being used is not effective. The management depends on how efficient the accounting system is. So even if your company or business is only at its infant stage, it still pays to use the latest accounting policy, the mark-to-market accounting policy.

News Source: BusinessFinanceMag.com

A Report on the Performance of Small Businesses

Everywhere in the world, there is a feel of the financial crisis. May it be a small or big enterprise; there is always the effect of the financial crisis. This is why many businessmen and businessman-aspirants are thinking twice about starting up a business today. But recently, Intuit completed a survey with Intuit customers. This group consisted of accounting professionals and small business owners. The results reflect what these people have to say about the current status of businesses.

For one, 65% of accounting professionals and 54% of small business owners believe that their businesses grew in the last 12 months. However, 75% and 80%, respectively, say that the economic status is only “fair” and “poor”. Though this is the case, 94% of accounting professionals and 87% of small business owners feel much optimism that their businesses will grow in today’s economy.

It is also interesting to note that 38% of accounting professionals are already using the online accounting software. On the other hand, only 29% of small business owners are using the said application. The online accounting software enables an accountant or businessman to go elsewhere but remain connected to his business via the internet. Although only 38% of accounting professionals are availing the online accounting software, a great 74% believe that this is a very effective tool for business management.

Another finding states that 60% use email and 54% use the telephone to talk with their accounting professionals on a regular basis. This means that monitoring of one’s business is already possible even when you are in a remote area.

These figures are very important bases for anyone who is into business. There is actually a hope for businessman-aspirants because there are a number of ways for one to play his cards. And the birth of the new online accounting application is surely a huge leap in the business sector. Hopefully, people will see its relevance in the few weeks to come.