Why Financial Accounting and Auditing is Important for Businesses?
Accounting and auditing functions are extremely part of financial management. Large business houses usually employ an entire department that deals with auditing and accounting of day to day transactions. On the other hand, in smaller setups, owners tend to handle accounting by themselves or through one or two accountants at most. With the emergence of fintech startups, there is even more focus on financial accounting and auditing aspects. As per
statistics, there are around 360 active Indian startups in fintech space. This presents huge opportunities for finance professionals.
There is the heavy demand for accountants and auditors across industries and sectors of all sizes. Therefore, many students are showing an inclination towards the professional course in finance and accounting. Here are the top reasons why these two functions are vital to the survival of every business.
Correctness and Accountability
Accounting of day to day transactions ensures that the financial records being maintained are up to date and accurate. In a growing business, the environment is very dynamic and this is why it important that there is reasonable accountability. If proper records are not maintained, expenses can spiral out of control within a very short frame of time, eating out of profits and eventually causing a total collapse.
Zero Leakages and Reliability
Regular audits identify loopholes in accounting and internal controls of an entity. With the help of findings, it becomes easier to plug these leakages. Due to periodic nature of audits, a business can correct its mistakes and modify accounting for transactions as per the rules and regulations that govern them. Right from nipping a fraud in its infancy to providing a reasonable degree of assurance on the reliability of accounting records, audit as a process is extremely vital for every organization.
Tax Computations & Deductions
There are different types of taxes that a business is subject to- Goods and Service Tax (GST), excise, income tax etc. We all know that filing returns and timely payment of taxes after undergoing a tax audit is required by law. In case of indirect taxes, business has to declare its stockpile, production and sales. The only way to maintain these details is an accounting. Accounting records provide the basis of income computation which is eventually declared in return and based on which taxes are paid. All taxes allow deductions like depreciation, business expenses, a certain class of investments etc. that lead to income tax savings. Again for computing these deductions the accounting records are the basis.
Strategic Assistance
The accounting of actual financial transactions provides an overall view of a business’s performance. This information can help you create short-term as well as long-term goals through budgets, forecasts etc. Accounting also equips business with tools to continuously monitor and track the performance by using variances so that an organization can keep on its planned path of revenues and expansions. A professional course in finance and accounting impart the understanding of various techniques of building strategy using accounting as the tool.
Aids funding
Every business needs funds to function and it is impractical to expect that it will generate funds to meet all its requirements all the time. In a fast-growing business, internal funding is almost impossible as there is more of investment and revenue generation is slow. In case of mature businesses, the product cycle which starts from manufacturing and ends with revenue realization has a big time lag and external funding becomes indispensable. Even for building infrastructure for expansion, a business needs a considerable amount of money which it may not have at the moment. This necessitates approaching banks and financial institutions for loans by undergoing a rigorous process of vouching and reviews wherein the lender assesses the repayment capability of the potential borrower. This assessment is carried out by considering the audited accounting records of the entity.
Expand Operations
As digital economy breaks down geographical barriers, businesses are expanding their operations beyond their domestic roots. They are going international! However, global operations also bring several hurdles in the form of financial processes, the understanding financial framework of that country, tax computations, salary payments, etc. Global operations call for the expertise of finances and accounts at the tip of fingers.
Accountability Towards Stakeholders
Whether it is a small, large or startup enterprise, each one is accountable to its stakeholders namely investors, employees, customers, vendors and partners. The stakeholders expect the financial records of the company in place. The financial accounting and auditing keeps the financial health of the company in check and ensures that regular reports go out to the stakeholders.
Financial accounting and auditing are an important part of running a business. It is evident from the real-life cases that even the biggest and best of companies tend to fall when their accounting systems fail. With the requirement of accounting and auditing professionals bulging there is a high demand for courses in finance and accounting as students expect better opportunities, pay packages and growth in this career.
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