Why Do We Need Accounting Services?

Off late, many firms have come up in India and in other part of the world to cater to accounting needs of businesses across the world.

What is there in accounting that attracts so many people to jump into the bandwagon? And why is accounting so important? Why do you need accounting services?

The answer to the importance of accounting to you depends on who you are.

Firstly, you could be an individual or an organization having economic transactions with an enterprise. For instance, you could be a supplier of goods or services on credit to the enterprise, a banker who has lent money to them, a customer who wants to buy goods or services from the enterprise, or a contractor who has agreed to build plants and buildings for the enterprise. Any of the above will be interested in knowing whether the enterprise is credit-worthy, and if so, to what extent. Put simply: before you enter into a business deal with these people, you would want to know if there is any chance of your losing your money from the deal because of their inability to pay you.

Secondly, you could be a regulatory agency of the government: the IRS, the SEC or any such agency. Then you would want to ensure that the enterprise

(a) Complies with the laws of the land relating to financial transactions, i.e., Pays the required amount of tax, pays the appropriate dividends out of its Profit, provides for depreciation and bad debts, etc.;

(b) Discloses its costs, sales, profits and capital to the general public;

(c) Provides data relating to its borrowings, so that future lenders know the Current level of its borrowings.

You could also be an Analyst for a fund that has put its money in the enterprise or a firm of stockbrokers. Your interest could then be to ensure that your clients' interests are safeguarded. You could even be a judge in a court, having to decide a dispute involving the enterprise. You could be a prospective shareholder or an analyst in a financial newspaper.

If you are any of the above, you will have many questions regarding the financial health of the enterprise that you would wish addressed.

Since the company has to answer so many questions from so many diverse parties, it makes a lot of sense to have one standardized form of collecting and displaying all this information. Any of these parties can pick up a published accounting statement of the enterprise and analyze it, by itself or in comparison with a previous statement of the enterprise, or in comparison with a similar statement of another enterprise in the same line of business, and arrive at its decision.

This makes the life of all these interested parties easy. But why should the enterprise be interested in this information?

Actually, the owners of the enterprise are probably far more interested in this information than outsiders. They would like to know

a) Whether the enterprise made any profit during the period, and if so, what are The dividends they are likely to declare;

b) Whether the financial condition is sound, and the future outlook for the Business is bright; and

c) Whether the operations are being carried out in an efficient manner, and if Productivity and cost levels are on par with industry standards.

The management of the company would like to have information relating to:

a) Setting targets for future periods,

b) Measuring the performance of various departments and business units,

c) Evaluating the performance against a target set previously, and

d) Highlighting areas for improvement and taking remedial action.

For these reasons, data is required about financial transactions of the enterprise. Without standard accounting methods, the task of gathering and analyzing this data is nearly impossible.

And it is for this purpose that experts all over the world try to sell their expertise and help enterprises in compiling standard books of accounts and then generating necessary reports for various parties interested in the enterprise.

Steve is a qualified accountant (Indian CPA) and co-founder of APT Services, the fastest growing outsourced accounting service provider in India. Steve has over 10 years of expertise in audits, accounting (both US & Indian GAAP), and payroll and tax preparation services. For details on services provided by APT Services, log onto http://www.aptservicesonline.com
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