68. Accountancy services: management accounting.

In Management accounting or managerial accounting, managers use the provisions of accounting information in order to better inform themselves before they decide matters within their organizations, which allows them to better manage and perform control functions.

One simple definition of management accounting is the provision of financial and non-financial decision-making information to managers.

Management accounting information differs from financial accountancy information in several ways:

• while shareholders, creditors, and public regulators use publicly reported financial accountancy information, only managers within the organization use the normally confidential management accounting information;

• while financial accountancy information is historical, management accounting information is primarily forward-looking;

• while financial accountancy information is case-based, management accounting information is model-based with a degree of abstraction in order to support generic decision making;

• while financial accountancy information is computed by reference to general financial accounting standards, management accounting information is computed by reference to the needs of managers, often using management information systems.

Specific methodologies: Activity-based costing, Grenzplankostenrechnung (GPK), Lean accounting, Resource Consumption Accounting, Standard costing, Throughput accounting, Transfer pricing.

Listed below are the primary tasks/services performed by management accountants. The degree of complexity relative to these activities are dependent on the experience level and abilities of any one individual: Rate and volume analysis, Business metrics development, Price modeling, Product profitability, Geographic vs. industry or client segment reporting, Sales management scorecards, Cost analysis, Cost–benefit analysis, Cost-volume-profit analysis, Life cycle cost analysis, Client profitability analysis, IT cost transparency, Capital budgeting, Buy vs. lease analysis, Strategic planning, Strategic management advice, Internal financial presentation and communication, Sales forecasting, Financial forecasting, Annual budgeting, Cost allocation.

69. Accountancy services: auditing.

A financial statement audit is conducted to provide an opinion whether the financial statements (the information being verified) are stated in accordance with specified criteria. Normally, the criteria are international accounting standards, although auditors may conduct audits of financial statements prepared using the cash basis or some other basis of accounting appropriate for the organization. In providing an opinion whether financial statements are fairly stated in accordance with accounting standards, the auditor gathers evidence to determine whether the statements contain material errors or other misstatements. The audit opinion is intended to provide reasonable assurance, but not absolute assurance, that the financial statements are presented fairly, in all material respects, and/or give a true and fair view in accordance with the financial reporting framework. The purpose of an audit is to provide an objective independent examination of the financial statements, which increases the value and credibility of the financial statements produced by management, thus increase user confidence in the financial statement, reduce investor risk and consequently reduce the cost of capital of the preparer of the financial statements.

The following are the stages of a typical audit:

Phase I Plan and Design an Audit Approach

Accept Client and Perform Initial Planning.

Understand the Client’s Business and Industry. (The relevant industry, regulatory, and other external factors including the applicable financial reporting framework, The nature of the entity, The entity's selection and application of accounting policies, The entity's objectives and strategies, and the related business risks that may result in material misstatement of the financial statements, The measurement and review of the entity's financial performance, Internal control relevant to the audit)

Assess Client’s Business Risk

Set Materiality and Assess Accepted Audit Risk and Inherent Risk.

Understand Internal Control and Assess Control Risk (CR).

Develop Overall Audit Plan and Audit Program

Phase II Perform Test of Controls and Substantive Test of Transactions

Assess Likelihood of Misstatement in Financial Statement.

At this stage, if the auditor accept the CR that has been set at the phase I and does not want to reduce the controls risk, then the auditor may not perform test of control. If so, then the auditor perform substantive test of transactions.

This test determines the amount of work to be performed i.e. substantive testing or test of details.

Phase III Perform Analytical Procedures and Tests of Details of Balances

Some audits involve a 'hard close' or 'fast close' whereby certain substantive procedures can be performed before year-end. For example, if the year-end is 31 December, the hard close may provide the auditors with figures as at 30 November. The auditors would audit income/expense movements between 1 January and 30 November, so that after year end, it is only necessary for them to audit the December income/expense movements and 31 December balance sheet. In some countries and accountancy firms these are known as 'rollforward' procedures.

Phase IV Complete the Audit and Issue an Audit Report