This article by Dan Rooks describes the various kinds of accountants and their roles. Info Plus President, Diane Gilson, contributed some thoughts and background information.
Dan is co-founder and CEO of Decisive Systems, Inc., a software company that measures the operating cost of heavy equipment. Besides creating “Tools to make smart machine owners smarter”, DSI also provides consulting and education services.
Types Of Accountants
Do you hate accounting and bookkeeping as much as I do?
Many of my clients have said to me “My accountant calculates my machine cost”.
Most smaller and medium sized businesses (with less than 500 employees) have either in-house or outside accountants.
An Important Job
But many owners and managers – in all sizes of organizations – don’t realize the huge variance between different types of accountants and the specific skill sets that they bring to your business. Because the different perspectives and “rules” that each brings to the table can have a major impact on your business and the decisions you make, it’s important for you to understand the differences. For instance, your Financial Accountant who prepares your company’s tax returns, Income Statement and Balance Sheet will likely report financial results in much different manner than a Management Accountant.
Accounting viewpoints can be as different as day and night. So when your Financial Accountant says your cost of an employee is $______ per year, or a machine costs $____ per hour, but your Management Accountant says “Wait a minute. Here is what I compute your REAL costs to be” – you’ll need to know why they’re coming up with different results.
Wikipedia says Management Accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions.
In contrast to financial accounting information,
Management Accounting Information is:
- Designed and intended for use by managers within the organization, instead of being intended for use by shareholders, creditors, and public regulators.
- Usually confidential and used by management, instead of publicly reported.
- Forward-looking, instead of historical.
- Computed with management decision-making needs in mind, and are often based on management information systems, rather than being ruled by generally accepted accounting principles (GAAP) which all public accountants are required to follow.
Just because you have a small or medium-sized business, it doesn’t mean you can’t afford a Management Accountant. Many Management Accountants work with small businesses at reasonable prices. (Note: If you want to speak with a management accountant about possibly helping you, contact me, I may be able to refer you to someone.)
There are at least 46 types of accountants (or certifications of). For this article, let’s discuss just 6 types of accounting that may be of special interest to you:
6 Types Of Accounting
- Audit Accounting: Audit services are at the core of public accounting (CPA) work. CPA’s “certify” to third parties that the reports they are viewing are reasonable representations of a company’s financial position, and that the statements comply with generally accepted accounting principles (also known as GAAP – a complex set of accounting principles and “rules” that CPAs must adhere to). Auditing work involves checking transactions, account balances, internal accounting control systems, and financial statements for businesses, public, and not-for-profit organizations. It enables new accountants to understand how financial transactions are supposed to be recorded and reported to third parties, and how businesses make money. An auditing career provides a solid foundation for future work in more specialized accounting arenas (e.g., tax, financial, investment, analytic, or management accounting).
- Tax Accounting: Tax accountants (many, but not all, are CPAs) prepare corporate and personal income tax statements. They may also assist with strategies for minimizing and deferring taxes, and provide advice on when to expense items, how to approach a merger or acquisition, etc. They need to have a thorough understanding of economics and keep current with the ever-changing tax code. Because taxes are based on laws, many firms also require staff members to acquire additional legal training.
- Financial Accounting: Financial accountants draw information from the general ledgers to prepare internal and external financial statements and “management discussions and disclosures”. They also take part in the business’s important financial decisions involving mergers and acquisitions, employee benefits planning and long-term financial projections. This work can vary from week to week, so it needs a combined understanding of accounting and finance.
- Management Accounting: Management accountants work in companies and contribute to decisions about capital budgeting and business analysis. Major activities include time and cost analysis and projections, contracts analysis, and participation in efforts to control expenses. Management accountants are now major contributors to business decisions, working alongside marketing and financial managers to develop new, profitable business. They are not constrained by GAAP, and so may be able to provide information that’s more meaningful for day-to-day decisions.
- Budget Analysis Accounting: A budget analyst develops and manages financial plans in a business. This position requires strong quantitative skills as well as good people skills – especially if they are involved in negotiations.
- Bookkeeping: Is the recording of day-to-day financial transactions (e.g., sales, purchases, income, and payments). Bookkeeping should be performed by someone with strong organizational skills who enjoys a sense of order and control. To obtain the most value from bookkeeping staff, they should be trained by and/or report to someone with a strong accounting background. I.e., bookkeeping is generally considered to be a high-level clerical function and should not be confused with true accounting, which requires extended study and experience.
There are a number of ways that you and your accountants can analyze your numbers. So it’s good to ask yourself:
- What types of accountants are providing you with information and advice and what is their perspective?
- Do you fully understand how they have arrived at their numbers, and why they took a particular approach?
Does their approach make sense given the particular decisions that you need to make?
Author: Dan Rooks
Contributor: Diane Gilson