Explore how professional accounting and bookkeeping services play a pivotal role in maintaining transparency, financial integrity, and compliance within corporate governance, fostering trust, and responsible business practices.
Accounting and bookkeeping services are a vast discipline that primarily takes care of ascertaining and communicating the financial information of companies at or over a given period of time. Various financial statements do reflect the financial position of a company and accountants are in charge of preparing them. But there is more than meets the eye here. Accounting and bookkeeping services are much more than just the numbers. A decent Accounts training institute teaches not only the basics of Accounting and bookkeeping services but also how to interpret financial data to make all-encompassing business decisions and even day-to-day business administration.
Today our agenda is to look at how Accounting and bookkeeping services contribute to proper Corporate Governance.
First things first, in order to understand the role of Accounting in Corporate Governance we must first understand, you guessed it, Corporate Governance.
Corporate Governance – What
This kind of Governance in general comprises all the rules, laws, practices, and principles on the basis of which entities are directed, managed, and controlled. It recognizes and empowers people who have the expertise and authority to make key decisions in a setup.
Basically, it is a systematic process of allowing the decision-making body of an entity to tackle the challenges associated with doing business. After all, decision-making is a complex thing that needs several things taken into account. Especially with opportunity costs in play, one wrong decision concerning a key business process can have a domino effect on other processes. This can subsequently amount to disruption in the daily functioning of a business.
Corporate Governance – Why
This Corporate Governance is needed to strike a balance between the interests of various groups. These include companies’ stakeholders (comprising of investors and stock owners), customers, suppliers, the top brass, the government, and even the public. This is required for smooth sailing of lots of business processes without a clash of interests.
Corporate Governance offers the management a framework for achieving a company’s business objectives. Thus entailing every management function starting from business planning and internal controls to corporate disclosure and the mandatory Corporate Social Responsibility (CSR). It also helps in things like corporate tax in the UAE and other legal demands on the industry
Corporate Governance – Role of Accounting
Corporate Governance and Accounting cannot function independently of each other. You need them to work together to make sure that all aspects are handled right. This includes corporate tax in the UAE. The latter serves as fuel to the former. Quality Corporate Governance has become a deciding factor that empowers firms to maintain a strong financial standing in their respective target markets.
Most Corporate Governance failures in events around the world have seen fingers being pointed at the Accounting department in question. This is fair as the Accounting department is sort of an enabler of major Corporate Governance activities undertaken by companies. Exemplary Corporate Governance can effectively build a good image of a company in the minds of investors, thereby leading to lower capital costs in investments.
Accounting, thus can be considered as the catalyst of good Corporate Governance. This is because Accounting professionals periodically compile data to report the internal activities of companies to stakeholders. This data reporting has to have some sort of homogeneity in its presentation, otherwise, the reporting across markets is going to be ambiguous, which will in turn impact Corporate Governance decisions such as corporate tax in the UAE among other things.
Thankfully, all bookkeeping and accounting firms in the UAE are rigorously controlled and monitored by certain global standards and regulations. One such globally accepted convention is the International Financial Reporting Standards (IFRS). IFRS is to Accounting what FIFA is to football, or ICC is to cricket for that matter. The common industry-wide regulations make it mandatory for companies to disclose the needed information to the masses.
Of course, IFRS norms cannot be exactly the same in all countries with varying socio-economic and geographical considerations. TO tackle this, certain IFRS-compliant but slightly tweaked variations are in use in several countries. For instance, India uses Ind-AS (Indian Accounting Standards) which are compliant with IFRS as well as suited to the Indian economic scenario.
Corporate Governance – Role of Accounting: A Closer Look
Accounting and bookkeeping practices in the UAE are highly efficient in Corporate Governance as evident by now. Accountants provide crucial opinions while planning strategies for long-term business governance.
Accounting firms in the UAE generally plan effective business strategies based on the data supplied by accountants. They can decide how to function, where to invest, when to invest, and how much to invest so that returns are good and stakeholders are happy too. Accountants assist their firms in making effective plans regarding their growth and operations.
For example, an accounting firm in the UAE can help shortlist projects, plans, or areas that are incurring more costs than returns. On the basis of this information, his/ her company can plan growth strategies in a way that not only complies with industry regulations but also ensures good returns.
Public Limited Companies, unlike Private ones, are accountable to the public in several ways. Organizations should meet their obligations, such as paying taxes, to the public. Based on the financial status of firms, public stakeholders consider making investments. Accountants play a major role in ensuring the company’s financial data reaching stakeholders is strictly accurate.
Bookkeeping and accounting firms also have to monitor processes to make sure companies are not indulging in unethical practices. This is to deliberately present a faulty (or a rosy) financial image to the public. Accountants intimate companies of consumer demands, encouraging them to keep the public interests in consideration while implementing strategies.
Shareholders, as is evident from the name are people who have bought at least one share of a company. Thus have placed their trust in the company. Companies are directly answerable to their shareholders, as shareholders have financially invested in them and thereby have become partial owners. It is the responsibility of firms to provide complete and detailed financial information to the shareholders.
Based on the information shared, shareholders can take further steps,. For instance increasing investments, divesting, or voting against certain undertakings that are resulting in losses. Accountants are the ones who accumulate this financial information to present sharp facts and figures to the shareholders.
Cash Flow Management & Reporting
Accountants assist firms not only in planning long-term strategies. However, it also addresses short-term and everyday necessities to maintain a sustainable business operation. Maintaining a healthy cash flow is one of the major responsibilities of an accountant. He/ she helps draw a clear picture of how much cash the company has in hand, which helps prioritize and make crucial financial decisions.
Acting on this information, companies make decisions regarding supplies, resources, and equipment in a way that doesn’t overspend their valuable cash in hand, which in accounting terms is very valuable. This is because liquidity can be hard to maintain especially in trying times like these.
Accountants also help their respective firms manage lines of credit and monitor all their short-term financial resources. This assists in avoiding needless debt. Who likes excess debt anyway?
Company Accountability – Management Reporting
Major departments of a company, whether interdependent or not are bound by a common thread called Accounting. Financial Reporting entails the accurate reporting of company financials to stakeholders, whereas management reporting involves internal management.
Accountants have to manage both these practices and aggregate the company’s financial data to report accurate figures. Financial Reporting helps investors by offering valuable insights into the company’s financials. Whereas Management Reporting offers the internal management of a firm’s detailed inputs and information about the state of affairs in the company.
Thus Accounting firms in the UAE play a paramount role in helping businesses conduct both Financial and Management Reporting.
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