Accountancy and accounting

Accountancy (profession) or accounting (methodology) is the measurement, disclosure or provision of assurance about information that helps managers and other decision makers make resource allocation decisions. Financial accounting is one branch of accounting and historically has involved processes by which financial information about a business is recorded, classified, summarized, interpreted, and communicated. Auditing, a related but separate discipline, is the process whereby an independent auditor examines an organization's financial statements in order to express an opinion -- that conveys reasonable but not absolute assurance -- as to the fairness and adherence to generally accepted accounting principles, in all material respects.

Practitioners of accountancy are known as accountants. Accountants may be licensed by a variety of organisations, such as the UK's Institute of Chartered Accountants, and are recognized by titles such as Chartered Accountant and Certified Accountant (UK, New Zealand, Canada, India, Pakistan), Certified Public Accountant (US, New South Wales, Hong Kong), Certified Management Accountant (Canada), Certified General Accountant (Canada), or Certified Practicing Accountant (Australia). Some commonwealth countries (Australia and Canada) often recognise both the certified and chartered accounting bodies. The majority of "public" accountants in New Zealand and Canada are Chartered Accountants; however, Certified General Accountants are also authorized by legislation to practise public accounting and auditing in all Canadian provinces, except Ontario and Quebec, as of 2005. There is, however, no legal requirement for an accountant to be a paid-up member of one of the many Institutes and other bodies which are effectively a form of professional trade union. Unlike the Law Society, which can legally stop a solicitor from practising, accountancy institutes do not have such authority.

Accountancy attempts to create accurate financial reports that are useful to managers, regulators, and other stakeholders such as shareholders, creditors, or owners. The day-to-day record-keeping involved in this process is known as bookkeeping.

At the heart of modern financial accounting is the double-entry book-keeping system. This system involves making at least two entries for every transaction: a debit in one account, and a corresponding credit in another account. The sum of all debits should always equal the sum of all credits. This provides an easy way to check for errors. This system was first used in medieval Europe, although claims have been made that the system dates back to Ancient Greece.

According to critics of standard accounting practices, it has changed little since. Accounting reform measures of some kind have been taken in each generation to attempt to keep bookkeeping relevant to capital assets or production capacity. However, these have not changed the basic principles, which are supposed to be independent of economics as such.

Commonwealth of Nations

In the United Kingdom, Canada, Australia and several other Commonwealth of Nations countries, the equivalents of Certified Public Accountant (CPA) include Chartered Accountant (CA - in UK, Commonwealth and former British states), Chartered Certified Accountant (ACCA - United Kingdom), Chartered Institute of Management Accountants (CIMA), Association of Accounting Technician (AAT), International Accountant (AIA - United Kingdom), Certified Public Accountant (CPA - Ireland and CPA - Hong Kong), Certified General Accountant (CGA - Canada), and Certified Practising Accountant (CPA - Australia).

Please refer to the latest statutory auditing rights of above accounting bodies in individual jurisdictions and distinction from non-audit bodies for various consumers. In UK, only 3 chartered accountants (England & Wales, Scottish and Irish)and their equivalents (AIA and ACCA) are "Registered Auditors" under Companies Act.

CA is the best known and most respected finance and accounting qualification in the UK, equivalent of a ACCA but handled by a different board, the Institute of Chartered Accountants in England & Wales (ICAEW).

Canada

In Canada, there are three recognized accounting bodies: the Canadian Institute of Chartered Accountants (CA) and the provincial and territorial CA Institutes, the Certified General Accountants Association of Canada (CGA), and the Society of Management Accountants of Canada (CMA). CA and CGA were created by Acts of Parliament in 1902 and 1913 respectively and CMA was established in 1920.

The CA program focuses on public accounting and candidates must obtain auditing experience from public accounting firms; the CGA program takes a general approach allowing candidates to focus in their own financial career choices; the CMA program focuses in management accounting. Both the CA and the CMA programs require a candidate to obtain a degree as a program entry requirement. The CGA program only requires a degree as an exit requirement prior to certification.

Auditing and Public Accounting are regulated by the provinces. Historically, only CAs can perform audits in Ontario. In 2004, the provincial government of Ontario passed a new Public Accounting Act that would allow qualified CGAs and CMAs to perform audits, conditional on their organizations being able to demonstrate that their qualification and regulatory programs are equivalent in rigour to that of the CA program. As of March 2006, this process of evaluation had not yet begun. In Quebec as well, CAs still have exclusive public company audit rights by statute. In British Columbia and Prince Edward Island, CAs and CGAs have equal status regarding public accounting and auditing; In the rest of Canada, CAs, CGAs, and CMAs are considered equivalents pursuant to provincial and territorial legislation.

United States of America

In the United States, practicing accountants include Certified Public Accountants (CPAs), Certified Internal Auditors (CIAs), Certified Management Accountants (CMAs) and Accredited Business Accountants (ABAs). The difference between these certifications is primarily the types of services provided, although individuals may earn more than one certification. Additionally, much accounting work is performed by uncertified individuals, who may be working under the supervision of a certified accountant.

A CPA is licensed by the state of his/her residence to provide auditing services to the public, although most CPA firms also offer accounting, tax, litigation support, and other financial advisory services. The requirements for receiving the CPA license varies from state to state, although the passage of the Uniform Certified Public Accountant examination is required by all states. This examination is designed and graded by the American Institute of Certified Public Accountants.

A CIA is granted a certificate from the Institute of Internal Auditors (IIA), provided that the candidate passed a rigorous examination of four parts. A CIA mostly provides his/her services directly to his/her employer rather than the public.

A CMA is granted a certificate from the Institute of Management Accountants (IMA), provided that the candidate passed a rigorous examination of four parts and meet the practical experience requirement from the IMA. A CMA mostly provides his/her services directly to his/her employers rather than the public. A CMA can also provide his services to the public, but to an extent much lesser than that of a CPA.

An ABA is granted accreditation from the Accreditation Council for Accountancy and Taxation (ACAT), provided that the candidate passed the eight-hour Comprehensive Examination for Accreditation in Accounting which tests proficiency in financial accounting, reporting, statement preparation, taxation, business consulting services, business law, and ethics. An ABA specializes in the needs of small-to-mid-size businesses and in financial services to individuals and families. In states where use of the word "accountant” is not permitted, the practitioner may use Accredited Business Advisor.

The United States Department of Labor's Bureau of Labor Statistics estimates that there are about one million persons [1] employed as accountants and auditors in the U.S.

U.S. tax law grants accountants a limited form of accountant-client privilege.

Size of market - UK

According to Accountancy Age's 2005 league table, fee income amongst the Top 50 accounting firms in the UK rose from £6.3bn to £7.0bn. This followed two successive years in which fee income had declined, largely a result of the sale by some of the larger firms of their consultancy arms. As detailed in the next section, fee income in most business areas - audit, tax, corporate finance and consultancy - rose in the 2005 survey, with insolvency and wealth management being the only segments where revenue fell.

PricewaterhouseCoopers remains the largest firm with fee income totalling £1,780m followed by Deloitte (£1,350m), KPMG (£1,066m) and Ernst & Young (£945m). The combined revenue of the Big Four accounted for £5.0bn, 72% of the fee income of the Top 50, down from 78-79% in the years up to the 2002 survey and the third year in succession a decline in their share has occurred (Chart 1). Ernst & Young's fee income is the smallest of the largest four firms, but still over three times that of the next largest firm, Grant Thornton. The amount of fee income tapers off amongst the mid-tier firms so that in total there were only 25 firms that each generated more than £15m of revenue in the 2005 survey.

Accounting concepts

• Entity concept
• Dual aspect concept
• Going concern concept
• Accounting period concept
• Money measurement concept
• Historical Cost concept
• Periodic matching of cost and revenue concept
• Verifiable objective evidence concept
• Realization concept
• Accrual concept

  Accounting standard-setting bodies

• United States
  • American Institute of Certified Public Accountants
  • Financial Accounting Standards Board
  • Governmental Accounting Standards Board
  • Federal Accounting Standards Advisory Board
  • U.S. Securities and Exchange Commission

• United Kingdom
  • Institute of Chartered Accountants of Scotland (ICAS)
  • Institute of Chartered Accountants in England & Wales (ICAEW)
  • Association of Chartered Certified Accountants (ACCA)
  • Chartered Institute of Management Accountants (CIMA)
  • Chartered Institute of Public Finance Accountants (CIPFA)
  • Association of International Accountants (AIA), a UK Registered Auditor is being consulted for Standard setting.
  • Association of Accounting Technicians (AAT)

• New Zealand
  • Accounting Standards Review Board
  • New Zealand Institute of Chartered Accountants

• Republic of Ireland
  • Institute of Chartered Accountants in Ireland

• Canada
  • Accounting Standards Board "AcSB"

• South Africa
  • South African Institute of Chartered Accountants (SAICA)

• Malaysia
  • Malaysian Accounting Standards Board
  • Malaysian Institute of Accountants

• International
  • International Accounting Standards Board
  • International Federation of Accountants