Industries, including manufacturing, retail, agriculture, and customer service have already had AI replace some job positions that left workers scrambling to find new career options.AI technology is intelligent machines that are able to complete repetitive tasks at a fraction of the time it takes humans and with greater accuracy.
There is no way to escape the use of AI technology, at least not if you hope to remain competitive in the upcoming years. The speed, efficiency and accuracy of AI technology just cannot be beat. The only thing accountants can do is to embrace this new technology and learn how to maximize its use. The better equipped you are to help your clients integrate and utilize AI technology in their accounting processes the more valuable you will be.
Many universities today are already incorporating IT and database management courses into their accounting program. This means that graduating students are coming into the workforce with the skills they need for future accounting work. Accountants already in the workforce must find ways to acquire these skills in order to remain relevant to their employers and/or their clients.
While there is no doubt that AI technology is capable of handling many standard accounting tasks faster and more efficiently or that these capabilities will only increase over time, it doesn’t mean the end for accountants. There always will be a need for that human element – human intelligence – at the other end of AI technology. In fact, according to leading research firm, Gartner, AI is set to create more jobs than it will replace, leaving workers, including accountants with options.
Accountants don’t have to worry about their job being replaced by AI any time in the near future. Companies will always need accountants that can analyze and interpret AI data, as well as provide consulting services. Rather than replacing the role of an accountant, AI technology will transform the duties an accountant performs.
Italian mathematician Luca Pacioli published the first book about double-entry bookkeeping on 10 November 1494 – and it is in his honour that International Accountants Day was started. His book, Summa de Arithmetica, Geometria, Proportioni et Proportionalita, described keeping accounts for assets, liabilities, capital, income, and expenses, much like the systems we use today in balance sheets and income statements. He advocated the use of ledgers and is known for saying a person should not go to sleep at night until their debits and credits are equal.
The world’s first accountants originated in Ancient Mesopotamia
Accounting is thousands of years old and can be traced as far back as ancient Mesopotamia.
The world’s first accountants worked for the temples, keeping track of taxes paid in sheep and agricultural produce for the religious authorities of the day. In the process, many historians believe they invented the practice of writing in order to keep receipts.
Many accounting terms have Latin roots
Accounting may be called ‘the language of business’, but did you know that many well-known accounting terms are derived from Latin?
The word ‘debit’ means ‘he owes’ in Latin, while ‘credit’ means ‘he trusts’. The word ‘accountant’ is derived from the Latin ‘computare’, which means ‘count’
For understanding difference between these terms, firstly let’s analyse each of them briefly.
What is Accrual
Accruals are revenues and expenses that are incurred during an accounting period for which no invoices or payments were received or made. They have an overall impact on an income statement. They also affect the balance sheet, which represents liabilities and non-cash-based assets used in accrual-based accounting. By recording accruals, a company can measure what it owes in the short-term and also what cash revenue it expects to receive. To make sure that you understood the main idea behind this term, I give an example for accrual calculation here:
Example 1:
An example of an accrual involving an expense is employee bonuses that were earned in 2018, but will not be paid until 2019. The 2018 financial statements need to reflect the bonus expense and the bonus liability. Therefore, prior to issuing the 2018 financial statements, an adjusting entry records this accrual. The accountant increases an expense and creates a liability. Once the payment has been made in the new year, the liability will be eliminated, and the cash will be reduced.
Example 2:
Question:
“Goncha Culture” company pays rent quaterly in arrears on 1 January, 1 April, 1 July and 1 October each year. The rent increased from 90000 per year to 120000 per year as from 1 October 2018.
What rent expense and accrual should be included in the company’s financial statetment for the year ended 31 January 2019?
Solution:
February to March 2018 (22500*2/3) 15000
April to June 22500
July to September 22500
October to December 30000
January 2018 (30000*1/3) 10000
Rent for the year 100000
Accrual 30000*1/3=10000
What Is Accounts Payable (AP)
Accounts payable (AP) is an accounting entry that represents a company’s obligation to pay off a short-term debt to its creditors or suppliers. Accounts payable are debits that must be paid off within a given period to avoid default (is the failure to repay a debt including interest or principal on a loan or security)
For example, imagine “Goncha Culture” company gets a $1000 invoice for office supplies. When the AP department receives the invoice, it records a $1000 debit in the accounts payable field and a $1000 credit to office supply expense. As a result, if anyone looks at the balance in the accounts payable category, they will see the total amount the business owes all of its vendors and short-term lenders. The company then writes a check to pay the bill, so the accountant enters a $1000 debit to the checking account and enters a credit for $1000 in the accounts payable column.
Comparison
So, according to above explanations we can compare these two terms now. As a result, difference is that an accrual is an accounting adjustment for revenue that has been earned but not yet recorded or an expense incurred but not yet recorded, and an account payable is a liability to a creditor that denotes when a company owes money for goods or services. Additionally, account payable is actually an accrual, but not all accruals are an account payable. Under the accrual accounting method, accrued revenue occurs when a company offers to sell its good or service on predetermined credit terms.
Goodwill is an intangible asset associated with the purchase of one company by another. Specifically, goodwill is recorded in a situation in which the purchase price is higher than the sum of the fair value of all identifiable tangible and intangible assets purchased in the acquisition and the liabilities assumed in the process. The value of a company’s brand name, solid customer base, good customer relations, good employee relations, and any patents represent some examples of goodwill. Goodwill is not the same as other intangible assets, it has an indefinite life, while other intangible has a definite useful life (is an accounting estimate of the number of years it is likely to remain in service for the purpose of cost-effective revenue generation.
The value of goodwill typically arises in an acquisition—when an acquirer purchases a target company. The amount the acquiring company pays for the target company over the target’s book value(is equal to its carrying value on the balance sheet, and companies calculate it netting the asset against its accumulated depreciation) usually accounts for the value of the target’s goodwill. If the acquiring company pays less than the target’s book value, it gains negative goodwill, meaning that it purchased the company at a bargain in a distress sale.
For understanding this term, let’s simply explain it with examples:
If Company A buys Company B for more than the fair value of Company B’s assets and debts, the amount left over is listed on Company A’s balance sheet as goodwill
2. If the fair value of Company ABC’s assets minus liabilities is $12 billion, and a company purchases Company ABC for $15 billion, the premium value following the acquisition is $3 billion. This $3 billion will be included on the acquirer’s balance sheet as goodwill. Goodwill is also recorded when the purchase price of the target company is higher than the debt that is assumed
Calculating Goodwill
It can be difficult to calculate, but there are two methods for doing so. The general formula to calculate goodwill under IFRS is:
Goodwill = Consideration transferred + Amount of non-controlling interest* + Fair value of previous equity interests – Net assets recognized
*Non-controlling interest (NCI)-also known as minority interest, is an ownership position whereby a shareholder owns less than 50% of outstanding shares and has no control over decisions. There are two methods for measuring non-controlling interests (NCI):
Fair value( is the sale price agreed upon by a willing buyer and seller, assuming both parties enter the transaction freely and knowledgeably. It also represents the value of a company’s assets and liabilities when a subsidiary company’s financial statements are consolidated with a parent company)
Non-controlling interest’s proportionate share of the acquiree’s net identifiable assets
Example:
“Goncha life Inc.” acquires “Aysel culture Inc.”, agreeing to pay $170 million to obtain a 90% interest in B. The fair value of the non-controlling interest is $18 million. Considering that the fair value of net identifiable assets to be acquired is $130 million and that no equity interests existed, the amount of the goodwill will be: $58 million ($170 + $18 – $130). This is also called “full goodwill method.”
Under the second method of measuring the NCI, the goodwill value that is recognized is $53 million (170 + [130 x 0.1] – 130 ). Thus, there is a difference of $5 million between the amount of the goodwill calculated under the two methods.
Needed steps for Goodwill calculation:
Calculated by taking the purchase price of a company and subtracting the fair market value of identifiable assets and liabilities.
Companies are required to evaluate the value of goodwill on their financial statements at least once a year and record any impairments*.
Goodwill is very different from other intangible assets, having an indefinite life, while other intangible assets have a definite useful life
*Impairment of an asset-occurs when the market value of the asset drops below historical cost. This can occur as the result of an adverse event such as declining cash flows, increased competitive environment or economic depression, among many others.
Despite being intangible, goodwill is quantifiable and is a very important part of a company’s valuation.
The International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Standards (GAAP) are the world’s two main accounting systems. Accounting standards-refer to a common set of accepted accounting principles, standards, and procedures that companies and their accountants must follow when they compile their financial statements.IFRS is used in more than 110 countries—has some key differences from the United States’ GAAP. At the conceptual level, IFRS is considered more of a principles-based accounting standard in contrast to GAAP, which is considered more rules-based. By being more principles-based, IFRS, arguably, represents and captures the economics of a transaction better than GAAP
The treatment of acquired intangible assets(things like goodwill, R&D,advertising costs) helps illustrate why IFRS is considered more principles-based. Under IFRS, they are only recognized if the asset will have a future economic benefit and has measured reliability
Under IFRS, the last-in, first-out (LIFO) method for accounting for inventory costs is not allowed. Last in, first out (LIFO) is a method used to account for inventory, where the most recently produced items are recorded as sold first. Under LIFO, the cost of the most recent products purchased (or produced) are the first to be expensed as cost of goods sold (COGS) – which means the lower cost of older products will be reported as inventory. Also, under IFRS, a write down (is an accounting term for the reduction in the book value of assets whose fair market value has fallen below the book value) of inventory can be reversed in future periods if specific criteria are met.
An entity using IFRS rules can classify equity method(is an accounting technique used by firms to assess the profits earned by their investments in other companies) investments as “held for sale,” which is not possible under GAAP.
Acquired intangible assets under GAAP are recognized at fair value(is the sale price agreed upon by a willing buyer and seller, assuming both parties enter the transaction freely and knowledgeably). Under GAAP, either LIFO or firt-in,first-out (FIFO) inventory estimates can be used. First in, first out (FIFO) is an asset-management and valuation method in which the assets produced or acquired first are sold, used or disposed of first and may be used by an individual or a corporation.
Under GAAP, once inventory has been written down, any reversal is prohibited
So as a summary:
Under GAAP, once inventory has been written down, any reversal is prohibited.
Under IFRS, a write-down of inventory can be reversed in future periods if specific criteria are met.
The move to a single method of inventory costing could lead to enhanced comparability between countries
IFRS vs GAAP and the future
There have been efforts to merge these two systems to have one robust, globally accepted accounting system that international businesses can use. The convergence of accounting standards refers to the goal of establishing a single set of accounting standards that will be used internationally, and in particular the effort to reduce the differences between the US Generally Accepted Accounting Principles, and the International Financial Reporting Standards (IFRS) and having one system will be beneficial to businesses, accountants, analysts and regulators as it enables comparability and certainty to investors. However, changing to one system is not very straightforward; it is a gradual process which the United States Securities and Exchange Commission is working on. The FASB and IASB continue to work together to develop standards relating to financial reporting.
From author…
So, according to my above research, the idea of global financial reporting standards registry is pretty useful. The single, global registry of financial reporting standards would be based on a single, global conceptual framework.Here are the advantages of global accounting standards:
Increased comparability across companies and between countries
Perhaps the single largest benefit of adopting unified global accounting standards would be an increased ability to work seamlessly with and across different countries
Reduced barriers to global expansion by businesses
Globalization has encouraged many companies to expand beyond their countries of origin, but the barriers to doing so are often difficult to overcome. Under the current system, companies that expand internationally are often forced to keep two sets of books to comply with a new country’s statutory accounting requirements. In particular, this can be a difficult task for small businesses, which are then faced with high costs of international compliance. This added cost can make a planned international expansion too cost prohibitive to be profitable
Streamlined administration by one central authoritative body
Adopting a single and unified set of global accounting standards would also allow rule- and policy-making authority to be vested in the hands of one central authoritative body
The one certainty is that global accounting is on its way.
Where in the world can you find the best accountant services?
Romania
Since the fall of communism in December 1989, Romania has undergone dynamic changes. The country experienced a boom on the back of accession to the EU in 2007 and, according to the World Bank, the last eight years have seen rapid economic growth. The cost of living is currently very low in Romania. Bucharest, its lively capital, is packed with restaurants, cafes, bars, museums and parks. Companies including all of the Big Four, Citibank, Renault and Visa have offices there.
United Arab Emirates
UAE continues to attract expats from around the world. Companies generally follow IFRS and best industry practices for financial reporting. In terms of job opportunities the emirate is refocusing on its traditional strengths: trade, logistics and tourism. But professional services and advice is also sought by other sectors including banking and financial services, real estate, leisure and so on.
Singapore
Singapore’s vision is to be a leading global accountancy hub for the Asia-Pacific region. The Singapore Financial Reporting Standards are closely modelled after the IFRS.
Malaysia
Already a “tiger” economy, Malaysia aims to become a developed country by 2020. In 2010 the country recorded a GDP growth of 7% – one of the strongest showings in the region. However, foreigners are encouraged to take up employment only in areas where there is a shortage of suitably trained Malaysians. CFOs, partners and senior accountants are predicting buoyant demand for qualified accountants over the next five years.
China and Hong Kong
No longer an emerging market, Greater China has transformed itself into a global superpower.Greater China report, average annual growth of 10% for the past three decades means its output has roughly doubled every seven years. Hong Kong’s top spot on the World Economic Forum’s ranking of financial development and Shanghai’s fast growth as an important financial centre in its own right is attracting global corporations to the East.
Australia
The Australian economy has been ranked as the world’s most resilient for six out of the last eight years and is currently one of the best performing economies in the OECD. Australia is a leading financial centre in the Asia Pacific region and its alliance with markets throughout the region provides business people with a comprehensive range of financial services. As Richard Stokes, contact member for the Institute of Chartered Accountants in Australia says: “Our members continue to find good career challenges and opportunities in Australia as well as enjoying the lifestyle. We have around 3,500 members here and we are ICAEW’s largest group of UK-qualified members based outside the UK. The local economy continues to expand while many other world economies struggle.”
Mauritius
With its warm and sunny climate, beautiful beaches and great golf courses, Mauritius is a nice place to live… and to work as a chartered accountant. “The ACA qualification is prestigious and always in demand,” says Pougnet. “There are over 10 organisations that are ICAEW authorised training employers.
Vietnam
PwC recently listed Vietnam as the fastest-growing economy among emerging markets. In 2011 the Vietnamese economy recorded an annual growth rate of 5.89%.Vietnamese Accounting Standards are followed and ICAEW works closely with the Vietnam Association of Certified Public Accountants (VACPA) to advance the accountancy profession in Vietnam and South East Asia.
Switzerland
It manages around a third of all private and institutional offshore funds, but Switzerland is also renowned for its high-quality precision engineering industry. Switzerland offers ideal operating conditions for foreign companies, including liberal and business-friendly legislation, political and financial stability and first-class infrastructure. According to expatfocus.com, a large percentage of Switzerland’s population consists of foreign nationals who move there for employment.
Pakistan
Pakistan’s economy has fared much better than other developed economies during the financial crisis. The UK business community already has a significant presence in Pakistan, with investments in oil and gas, IT and telecoms, education, pharmaceuticals, and the financial services sector. According to expat Heather Carreiro, there is a big market in Lahore for qualified professionals. “You may find yourself with several job offers within a short period of time,” she says, adding: “Qualified foreigners can afford a higher standard of living in Lahore than in many North American or European cities.”
The accounting system is the process of maintaining or recoding the company’s activities. The accounting system is the backbone of any company it helps to take major decisions after evaluating its various accounts for instance to find profit or loss of the company. The different country follows a different accounting system, the reason to follow different accounting system is that every country has their own economic condition, GDP, level of national income, per capita income etc. The business activities also differ according to the country, for example, a company has its functioning branches in two different countries. So, in that case, a company cannot apply the same decision in both the Branches due to differences in management behavior, different principles of inventory valuation, the rate of taxes, Depreciation, government policies etc. It is very important for the country to follow their own accounting system because accounting principles, the rate of taxes, depreciation and valuation techniques are being formulated after critical evaluation of the country’s economic condition.
If you have knowledge,let others light their candles in it.
(Margaret Fuller)
So we are starting. We, Aysel and Goncha (AG) will share Accounting Gossips(AG). Our aim is not just backbite about accounting, you will see news that related to accounting. And we hope that you will find fruitful information from our action 🙂
Accounting Gossip 