ACCOUNTING: CONCEPTS AND PRINCIPLES

ACCOUNTING: CONCEPTS AND PRINCIPLES

SECTION 1: POLICY AND PROCEDURE ON DOCUMENTATION CREATION

Bookkeeping is nothing but keeping the record of financial transactions in an organization. The transactions which mainly take place in an organization are sales, purchase, receipts, payments and income of the organization. There is a difference in bookkeeping and accounting, bookkeeping is just a part of accounting process. Bookkeepers record the financial transaction and accountant creates report from the financial transactions recorded by bookkeeper. Single – entry bookkeeping and double – entry bookkeeping are the two common methods of bookkeeping used by bookkeepers. A bookkeeper records the financial transactions and makes a trail balance and then accountants prepare balance sheets, income statements and cash flow statements etc. These bookkeeping or accounting processes are required to follow some procedures and policies so that the methods of accounting can meet with the legal requirements. The policies and procedures of bookkeeping/ accounting are discussed below:TYPES OF DOCUMENTS

The documents which are required to provide for bookkeeping are categorized as follows:

1. SALES: Monthly sales report, collection of GST and PST, invoices made for the customers

2. EXPENSES: Suppliers bills, statements of the credit cards, receipts of purchases from credit card as well as by cash.

3. BANKING: statement of bank and cancelled cheques, bank loan statement, line of credit and deposit slips.

4. Government forms: Returns of GST, PST and Payroll remittances (Proccounting n.d.).

The documents given above are the general list for the reference purpose only. In short we can say that the main documents for accounting are invoicing, accounts payables and receivables, bank reconciliations and financial reports. These documents include journal, ledger, trial balance, balance sheet, income statement and cash flow statement (Documents Electra 2004).

PURPOSE

In a business an organization needs to take decisions so that it can survive and without proper information of the current financial situation of the company decision making is not easy. Also an organization is required to follow some rules if it wants to operate in a particular territory. Government and other regulatory bodies of the territory make rules for the organization. For example accounting standards, generally accepted accounting principles and auditing processes etc. Without proper information fulfillment of these requirements will not be possible and hence a proper accounting procedure is required by the organization and to accomplish the accounting processes documentation is must.

An organization is also required to reveal its financial information to the investors, tax authorities, as well as creditors of the firm. Aim of an organization is to earn profits and also remain solvent. Remaining solvent means that the company has proper financial resources so that it can pay to its creditors, employees as well as can handle day to day activities. Purpose of documentation is to help in preparation of the financial statement (Dogra 2010).

FORMATTING

The documents which are prepared for the workplace of bookkeeping/accounting firm should follow some formatting requirements. Font size, type, page margins should be clearly defined. For preparing the documents in a bookkeeping firm we can use times new roman font type of size 12. There should be proper page margins i.e. 1” from both the sides and from top and bottom.

CHECKING PROCESS

As we described earlier that a firm is required to follow some rules and regulation and while preparing the documentation there are some legislations which are required to follow by the company too. For example a balance sheet can be prepared in two formats: either in vertical format or in horizontal format. To fulfill the legal requirement there should be a checklist which can include questions to identify if there are some requirements which have been left by the company.

The checklist can include questions related to accounting standards, companies act and other acts, tax requirements, accounting principles and auditing requirements etc. With help of the checklist organization will become able to identify the mistakes which have been made in preparing the documents and will remove the mistakes easily (Forum4CA 2006).

TEMPLATES

There are templates available to prepare the documents. An organization can use these templates to prepare the documents. Some of the templates are given below:

Template for balance sheet

BALANCE SHEET TEMPLATE

 

 

For the Month Ended ———-Right Side

 

Current Assets

 

Fixed Assets

 

Other Assets

Left Side

 

Current Liabilities

 

Long term liabilities

 

Shareholder’s equity

Vertical format of balance sheet used by companies today is provided below:

Your Company Name		Balance Sheet
Assets
Current assets:	2010	2011
Cash	–	–
Investments	–	–
Inventories	–	–
Accounts receivable	–	–
Pre-paid expenses	–	–
Other	–	–
Total current assets	–	–
Fixed assets:	2010	2011
Property and equipment	–	–
Leasehold improvements	–	–
Equity and other investments	–	–
Less accumulated depreciation	–	–
Total fixed assets	–	–
Other assets:	2010	2011
Goodwill	–	–
Total other assets	–	–
Total assets	–	–
Liabilities and owner’s equity
Current liabilities:	2010	2011
Accounts payable	–	–
Accrued wages	–	–
Accrued compensation	–	–
Income taxes payable	–	–
Unearned revenue	–	–
Other	–	–
Total current liabilities	–	–
Long-term liabilities:	2010	2011
Mortgage payable	–	–
Total long-term liabilities	–	–
Owner’s equity:	2010	2011
Investment capital	–	–
Accumulated retained earnings	–	–
Total owner’s equity	–	–
Total liabilities and owner’s equity	–	–
Balance	–	–

Similarly we can have templates for income statements, cash flow statement, invoices made to the customers, accounts receivables and accounts payables etc.

USEFUL SOFTWARE PROGRAMS

There are many software programs available which can be used to prepare the documents in an organization. Software which is used for accounting purposes is named as accounting software. This software helps the organizations in dealing with the recording and processing the accounting transaction. Initially it was done manually but organizations today use software so that they can enhance their accounting documentation. Micro – Soft Office is a package of software which is very useful in preparing the accounting documents for example micro – soft office excel and micro – soft office word are the two very important software used in preparing accounting documentation.

Apart from micro – soft there are also other software available that can be used in preparing accounting statements. Some of the software’s are listed below:

• Intuit QuickBooks Accounting Software
• Sage Simply Accounting Software
• Peachtree Complete Accounting Software
• AccountEdge Accounting Software for Windows
• AccountEdge Accounting Software for Mac (Ward 2012)

LOGO

Logo of the company is very important to put in the documents prepared for the organizations. For this an organization must have especially designed Logo which reflects the business and vision and mission of the organization. The logo can be put either in the footer or header of the documents as well as it can be used as a watermark. In the report further the example of using a logo is given.

While using the above mentioned software and principles an organization must consider that the programs and software being used by the company are relevant and according to the current requirements of the business. Outdated software and programs will not be relevant to the requirements as the software is continuously updated by the software producing companies. For example initially micro – soft provided its 2003 version and then 2007 version came and now it has already given MS Office 2010 to the world.

SECTION 2: DOCUMENTATION CREATION

Using the policies and procedures made on documentation creation above there are three documents made on sustainability strategy in financial organizations, networking plan and legal and ethical issues in financial services industry. All these documents are given below on different pages.

 

 

DOCUMENT 1: Sustainability Strategy Document for Financial Services Industry

Sustainability has become an essential thing for the success of the business today. Simple goal of sustainable development is to meet the current needs of the organization without compromising the future profit generation ability. The first and most important requirement for sustainable development is being innovative and having different way of thinking. Sustainable development mainly involves three factors which can affect the performance of an organization these factors are: social, environmental and economic. There is a relationship in between all these factors which are shown with the help of a figure given below:

(Source: Cayuga n.d.)

Continuously improving technology, knowledge and innovation has forced organizations to make new ways of operating the business. Activities of the organizations have a great impact on earth, people and economics. Organizations are required to understand these impacts and behave in such a manner so that they affect the three factors as less as possible.

Similarly in financial organizations sustainable development has become is very necessary as it helps the financial services industry in reducing the risks attached to its business. It is very important for a financial organization that the stakeholders of the organization have an exposure to the sustainable operations of the company. We can categorize financial services industry into four categories:

• Retail banking
• Commercial and corporate banking
• Asset management
• Insurance

PURPOSE OF THE SUSTAINABILITY DOCUMENT

A sustainability report is made to provide complete information about the organizational activities which impact the society, environment and economy of the organization. An organization can have positive as well as negative impact on the three factors and the report must address both the impacts. The report can be used for the purposes given below:

1. Sustainability report can be used for benchmarking the performance of the company and assessing the laws, norms, performance standards, codes etc decided for company.
2. Report also demonstrates the influence of organization to the sustainable development as well as influence of sustainable development to the organization.
3. A sustainability strategy document can also be used for the comparison of the sustainability performance of the company with the other organizations.

SUSTAINABILITY STRATEGY

Sustainability strategy for a financial services organization should not be only for the cost reduction, risk and reputation management or inspiration for the employees. Social and environmental impacts have become a serious issue for the financial services organization. These impacts are forcing financial services to innovate the processes for further works.

Technology has played a big role in the development of the financial services organizations as we can see the emergence of new integrated accounting systems and hence the expectations of the investors are increasing. To fulfill the expectation of the investors financial services organizations are required to think new sustainability development processes. These processes may include:

• Financial services organizations should go for creating the value for the investors rather than promoting values.
• Companies can consider the entire business model of the financial services not only the business case for the sustainable development.
• Companies are required to analyze the strategies that they use and should try to innovate for new strategic development (ACCSR n.d.).

TRIPLE BOTTOM LINE PRINCIPLE

Triple bottom line principle is highly associated with the sustainability strategy of the organizations. Triple bottom line is People, Planet and Profit which are nothing but another representation of society, environment and economics. Triple bottom line approach can provide many benefits to the financial organizations some of which are listed below:

• It enhances the reputation and brand of the  organization
• Provides a social license to operate businesses
• Helps in the retention of the employees of higher capabilities.
• Improves the access to the investors of the organization.
• Reduces the risks associated with the organization (Group 100 2003).

LINKS TO THE INFORMATION SOURCES

There are links provided for the information sources of sustainability management. These information sources are relevant to the sustainability management in the financial services organization.

http://www.group100.com.au/publications/G100_guide-tbl-reporting2003.pdf

http://www.ey.com/AU/en/Services/Specialty-Services/Climate-Change-and-Sustainability-Services

http://www.kpmg.com/AU/en/IssuesAndInsights/ArticlesPublications/Documents/Corporate-Sustainability-April-2011.pdf

The links given above are very useful in providing the information related to the sustainability management in a financial services organization. A person will be able to get information about the methods and guidelines of preparing a sustainability development report.

 DOCUMENT 2: Networking Plan

Networking is very useful tool for bookkeepers as they become able to connect easily with coworkers, college alumni, employers, friends, family etc. It helps bookkeepers in job search. There are some critical client’s needs which must be met by bookkeeper and networking plan helps in it. Some of the needs asked by the clients of bookkeeping services are given below:

• Set – up or restore the company file
• Posting receipts and bills
• Invoicing and posting revenue
• Maintenance of accounts receivables and account payables.
• Accounting reconciliation including banks, credit cards, shareholders etc (HBS n.d.).

JOB DESCRIPTION AND NETWORKING OPPORTUNITIES FOR BOOKKEEPERS

A networking plan must include the job description of a bookkeeper as it helps the employers in understanding the requirements of a bookkeeper. Job description of a bookkeeper is given below:

1. Keeping the records of financial transactions of a company. Using calculator and computer to verify allocate and post details of the business transaction.
2. Summarizing the details in ledger or computer files and then transforming the data to general ledger by using computers or calculators.
3. Reconciliation and balancing of accounts.
4. Calculating the wages of the employees, compiling the reports to show statistics, preparation of withholding, social security and other tax reports, etc (Career Planner 2012).

There are many networking opportunities available to the bookkeepers. With the help of networking they can enhance their client base. Those businesses which are required to do bookkeeping and accounting activities do not change their bookkeeper very fluently. And a networking plan of a bookkeeper keeps him in connection with the employees which help a bookkeeper in getting the jobs.

ACTIVITIES OF A NETWORKING PARTNER

1. Networking partner is required to link the businesses and services of the enterprises which require bookkeeping activities. To make this link personal contact of the networking partner with the organizations are required.

2. A bookkeeper is required to contact the business areas from where he can get work. This can be done by issuing business card and impersonal mails. But the contacts which will get established with these activities are not enough to produce the effective result. For attaining the effective result now bookkeeper is required to make personal contacts with the business areas. And this can be done with the help of cold calling.

3. Also the networking partner is responsible for offering the home bookkeeping services. The home bookkeeping services may include stocking, bookkeeping, taxes and payrolls and final accounts etc. There should also be a link to the specialist services in the networking plan which will definitely help the bookkeeper in increasing the client base (Article Base 2008).

FEEDBACK METHOD FOR CLIENT, BOOKKEEPER AND NETWORKING PARTNER

Getting the feedback from the client is very essential for every business today. A networking partner is a client for the bookkeeper, businesses which require bookkeeping and accounting services are the client of a bookkeeper.

There should be a link given in the networking plan to get the feedback from the clients. If there is a website made for the bookkeeper a feedback form can be put on the website. Also personal interviews will be very helpful in receiving the feedback.

 

 

 

 

DOCUMENT 3: Research report: Legal and ethical issues affecting the financial services

Ethical and legal issues in the financial services industry affects everyone as if a person is not the employee of a financial organization then he is a client of it or he consumes the services provided by the organizations. There is a perception in the public that financial services organizations are more unethical than other organizations. This misperception is because of the big size of the financial services industry. Financial services industry includes industries like banks, investment firms, mutual funds, securities firms, insurance companies etc. A person can assume the size of financial services industry with the data that total assets of the industry are more than $ 50 trillion and the industry is growing at a rate of 8 % per annum. The main ethical issues that a financial services companies faces are described below:

ETHICAL ISSUES

• Sometimes the self interest of the employees of financial services organizations becomes greed and selfishness. And in this situation employees start focusing on the short term profit maximization. This kind of situation generally appears in the swapping contracts. Companies make profits by playing around with the assets they have not buy selling the products and services (Federwisch 2006).
• Also there are some people who suffer from stunted moral development. This situation comes because of three main reasons: first, if the person was not able to understand or learn the moral responsibilities required to be in a financial services organization; second, the failure to look beyond one’s own perspective and third, lack of proper mentoring of the employee. We can better understand with the example of studies in business schools. In business schools students are always taught that the primary goal of an organization is to maximize the profit or to enhance the shareholder’s value which is not correct every time. Running the business ethically and legally should be the most important goal of an organization.
• There are some people who assume that the moral behavior is same as the legal behavior. But this fact is not true as it is not necessary that a task which is legal is also moral. We can understand it with the example of IRS regulations. These regulations say that there should be a legitimate purpose of every business activity. If an organization is doing a business activity without legitimate purpose it means that it is doing an unethical activity for example activities done to avoid taxation (Federwisch 2006).

Not only ethical issues are there which affect the business of a financial services organization. There are also some rules and regulations made to regulate the financial services industry. These regulations are mainly related to the taxation, accounting standards, code of conduct etc. These regulations are same foe many countries as well as different in some countries. Every business has a regulatory body in the financial services industry which takes care of the legal requirements of the business e.g. in India there is SEBI (Securities and exchange board of India) to regulate the stock market; IRDA (Insurance regulatory and development authority) to regulate insurance business; and RBI (Reserve bank of India) to regulate the banking in the country.

Similarly in Australia there are some rules and regulations required to follow by banks. We can understand it by taking the example of a bank in Australia. Let us take Heritage Bank to understand the legislations, regulations and code of practices in Australia.

INTRODUCTION: HERITAGE BANK

Heritage bank is the largest mutual bank of Australia. The head office of the bank is located in the Queensland and operations of the bank cover the aria of Darling Downs. Total consolidated asset managed by the bank is more than $ 7 billion and total number of staff in the bank is 700. The bank is having total 139 retail outlets as well as 59 outlets of full branch. Main products of the organization are banking, savings and mortgages. Legislations, regulations and code of practices followed by the bank are described below.

LEGISLATIONS, REGULATIONS AND CODE OF PRACTICES

Laws followed by the bank in Australia are constitutional law, statute law and common law. Law which comes under constitutional law is commonwealth of Australia constitution act. Statute laws are those laws which are passed by both the houses of parliament. Also there are some common laws followed by the bank for which is finalized by the high court of Australia.

Financial regulators which control the Australian financial services industry are given below:

• Auditing and Assurance Standard Board (AUASB)
• Australian Accounting Standard Board (AASB)
• Australian Prudential Regulation Authority (APRA)
• Australian Securities and Investment Commission (ASIC)
• Australian Transaction Report and Analysis Center (AUSTRAC)
• Financial Reporting Council (FRC) (Australian Government n.d.)

Apart from above there also some other regulatory bodies which makes laws and are followed by the Australian financial services industry. Banks also follow these laws according to the business requirements. Australian banks are also required to follow some code of practices. A brief introduction of these codes is given below:

Banks providing services to the customers follow these codes of practices. These codes were released in 1993. These codes are also reviewed time to time. Last review of the code of practices was done in December 2008. Some provisions of banking code of practices in Australia are given below:

• Disclosure of fees, charges and other terms and conditions to the customers.
• Disclosure of general information about the banking services.
• Privacy and confidentiality of the customers.
• Statements of Accounts and copies of documents (ASIC n.d.).

SECTION 3: EXPLANATION OF TASKS

ROLE MODEL FOR MY TEAM

A positive role model inspires his team to achieve the goals decided for the team. Achievements of a role model motivate the team members. There are certain behaviors of a role model described below:

1. Honor: A positive role model completes his tasks with a sense of integrity and honor. To become a role model it is required that the person has a high level of morality. This moral level of the person makes him able to take best decisions.
2. Compassion: Compassion is another valuable behavior of a positive role model. With the help of compassion a person can imagine what other people are going through and then the person acts with genuine empathy.
3. Reliability: Reliability is another quality of a positive role model. Members of a team can rely on the role model as role models generally complete their works within time and help other in the difficult situations (Tronshaw 2012).

REWARDING TEAM FOR MEETING OR EXCEEDING GOALS

Performance management and rewards have become an essential part of the success of organizations today. There are two types of rewards that can be given to the team members for achieving their targets, monetary and non – monetary.

1. Incentives: Incentives are the best monetary reward to motivate the employees. Approximately every organization is using it today. Incentives are financial benefits given to the employees for achieving the targets.
2. Medical Benefits: Providing medical benefits also comes under reward.
3. Promotion: Promotion of the employees or team members is very effective tool for motivating the team members. This not only motivates team members towards their goals but also increases the responsibilities of them (Mortensen 2006).

ENCOURAGING THE TEAM

There are some methods which can be used to encourage the team to take the responsibilities. Some of the tools are provided below:

1. Deciding the performance standards is the best method to encourage the team members. This helps team members in enhancing their performance.
2. Public recognition is another method which encourages the team members. A team leader can praise team member in public to encourage the member.
3. Also the negative feedback in private encourages the members of a team.

PROVIDING EFFECTIVE FEEDBACK TO THE TEAM

Feedback is essential to improve the performance of team members. Effective feedback can be provided by the following methods:

1. Performance of an employee can be noted in a document and then the person should be called by the manager or supervisor of the team to demonstrate his or her performance. This feedback could be positive, negative or neutral.
2. A supervisor should use positive feedback when he sees that the team member is performing well. For this supervisor should look always things which are going well in the team.
3. Also a manager should feel comfortable while providing the feedback. If a supervisor is not comfortable with providing the feedback it means he or she has not trained for giving feedback. But providing feedback can be learned (Moriarty 2012).

PROFESSIONAL DEVELOPMENT PLAN

Assuming that I have 5 years of work experience in bookkeeping and I have not completed any professional course, following is the professional development plan for me:

Professional Needs:

• Registration for providing bookkeeping services.
• Understanding the formal representation of record keeping.
• Learning the application of computer software in producing the bookkeeping documents.
• Understanding the entries in journal, ledger, trail balance etc.
• Learning the analysis of balance sheet, income statement as well as cash flow statement.
• Learning the forecasting techniques.

Professional Goals: As I have an experience of 5 years but I do not have a certified degree and hence first of all I need to have a certificate of bookkeeper’s course so that I can easily apply to the big firms for job. Also I need to learn some professional attributes like good communication skills, presentation skills etc.

Authorization Requirements: As I mentioned above that I do not have a professional degree therefore I need to get myself registered in an institute which is certified e.g. institute of certified bookkeepers.

External and internal resource requirement: The resources requirements are books, computers, fee etc.

Timeframe: I will be needing minimum of two to three years in completing the professional plan (Liew 2007).

Competency Level: Obviously there will be other bookkeepers in the market. To compete with them I need to have some extra qualifications like good presentation skills and communication skills. Also since I have five years of experience hence I will not have to face much difficulty in competing with other professional bookkeepers. I will be learning some new languages which will enhance my competency level.

Priority of professional needs: My first priority is to expand my core qualifications, for example preparing myself for CA or CPT programs. Also in current situation I need to learn excel skills and self learning writing skills.

Legislative requirements: Bookkeepers are required to fulfill some legislative requirements. Some of the requirements are listed below:

• Tax agent services act 2009
• Income tax assessment act 1936 (AAPB 2011)

SECTION 4: INFORMATION PACK FOR BOOKKEEPERS

As the scenario says that LonLon bookkeeping firm employed 10 bookkeepers and 3 out of ten were dismissed due to some ethical issues I need to prepare an information pack for all the bookkeepers in LonLon so that there will not be further professional problems. The information pack for bookkeepers is given below:

Code of conduct: There are many code of conduct available for bookkeepers. Some of the codes are provided below:

• Every bookkeeper will act with honesty, integrity and will follow the rules and regulation made for bookkeeping services.
• Every bookkeeper will give a due care to the needs of a client before providing the services to him.
• Bookkeeper will take care of the confidentiality of the information about his client and employer.
• Apart from above there are other professional codes of conduct e.g. objectivity and independency, competency, improvement and development in work and professional image and the association (AAPB 2006).

Checklist for compliance: There is a check list for bookkeepers so that when they are consulting for clients they maintain the compliance which is required:

• Is client’s requirements understood clearly?
• Is the bookkeeper following the rules and regulations required?
• Is the bookkeeper possesses the qualification required to fulfill the client’s need?
• Is confidentiality needs fulfilled by the clients?
• Does the bookkeeper have professional certification?

Statutory Requirement: There are some statutory requirements followed by bookkeepers. Some of them are given below:

• It is required to keep business records for 5 years if bookkeeper is using those records in a later tax return.
• The records kept must be in English.
• The records can be stored electronically or manually (Koskinas 2011).

Regulatory Bodies: There are many regulatory bodies which regulate the tasks of bookkeepers. Some of which are explained below:

1. Auditing and assurance standards board (AASB)

AASB is an independent statutory agency in Australia. This agency is responsible for developing standards and guidance for auditors and providers of other assurance services.

1. Australian Accounting Standard Board (AASB)

AASB is responsible for making accounting standards. These accounting standards are followed by public, private and non – for – profit sectors and participate. AASB also participate in the formulation of international accounting standards.

1. Australian Transaction Reports and Analysis Center (AUSTRAC)

AUSTRAC is anti – money laundering regulator in Australia. It is also a specialist financial intelligence unit. AUSTRAC takes care of the financial reporting requirements in Australia. It works according to the financial transaction report act 1988.

Legislations and Acts: Legislations and acts required to follow by the Australian bookkeepers are given below:

• Tax Agent Services Act 2009: It is an act to establish the tax practitioner’s board and to provide for the registration of tax agents and BAS agents.  http://www.comlaw.gov.au/Details/C2009A00013

• Income Tax Assessment Act 1936: There are certain requirements given in the act which are required to follow by the bookkeepers. http://www.comlaw.gov.au/Series/C2004A07420

• BAS Laws: BAS laws are required to be followed by bookkeepers and it is described in tax agent services act 2009. http://www.austbook.net/What+are+the+BAS+Agent+Laws

Common law: Common law applicable in Australia affects the bookkeeping industry in the country. A brief description of the common law is given below:

States and territories in Australia are separate jurisdiction and self governing. All the states in Australia have their own system of parliament and courts. The law which is passed by the parliament of Australia is applicable to the whole Australia. There is a high court in Australia which was established in 1903. High court of Australia has a general appellate over the supreme courts of the states which indicate that in Australia there is a single uniform law.

Penalties to the bookkeepers in case of breach:

• The tax agents who sign documentation prepared by unregulated bookkeepers will face a fine of $ 27500 under the tax agent services act.
• If a bookkeeper breaches the regulation then his or her registration may get cancelled.   (Uniting Bookkeepers n.d.)

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