The operations of the world like food, agriculture, healthcare, technological sciences, etc. it all scampers on money. One could say that money or financial operation is one of the most crucial man-made assets ever.
Thanks to ecadema, where you can learn all about it with the help of an online finance professional training, and master the skill.
Metaphorically spelling out, Accounting is like a big tree, it has been there for ages and has lots of branches like Financial accounting, managerial accounting, Auditing, tax, bookkeeping, etc.
Financial Accounting is the process of identifying, recording, summarizing and analyzing an entity’s financial transactions and reporting them in financial statements.
There are terms related to financial accounting in the accounting chain which leads to the final statement, proceeding step by step,
- Identifying transactions; invoices, bank statements, etc.
- Raw trial Balance; listing of business accounts and their transactions.
- Journal Entries; including date, account, subscription promo, subscription revenue
- Post transactions to the ledger; double entry.
Financial accounting works on a core principle: “Stuff that a business owns should be equal to the stuff that a business owes.”
(Assets = Liabilities + equity) this is called the Accounting Equation. This part should always be balanced. With ecadema, finance professional training and online accounting professional courses are easily available to monitor your growth direction by online accounting trainers.
Typically auditing cites to the evaluation of the financial statements of a company, performed usually by a third party to ensure and verify the financial records of the company being represented equitably and explicitly. Income statement, Balance sheet and Cash flow statement are the three primary financial statements.
Since the financial statements including operating, investing, and financing activities are prepared internally. Therefore a proper check is necessary to discern any sort of fraudulent activity.
Types of Audit
- Internal Audit: These audits are performed by internal employees of the company, prepared for the use of management and other internal stakeholders and not by any other outsource. Internal audits improve decision-making, internal controls and maintain fair, accurate and timely reporting. Internal auditing enables the flaws and inefficiencies to pin down within the company rather than entering any other outside auditor to look into the company’s statements.
- External Audits: These audits are performed by external auditors to obtain an unbiased opinion that internal auditors might not be able to provide. The aim of external auditing is to spot the errors and misstatements within the financial statements of the company. External auditors are independent to give their unbiased and clean opinion unlike internal auditors who may intrigue their opinion.
- Government Audits: Government audits are performed to certify the misrepresentation of the taxable amount of income of the company. Whether intentionally or not, misinterpreting of taxable income comes under tax fraud. Machine learning and statistical formulas are used by IRS & CRA to pin down the frauding companies or employees.
ecadema offers finance professional training and online accounting professional courses to make you learn the concepts of accounting by online accounting trainers.
Financial Risk Management
An understanding of how to steer the economy, the risks to tackle, and the methods to counter those risks, can act as a beneficiary. This is called Financial risk management.
A mainstream google search about Financial Risk Management will apprise that “It is the procedure of protecting economic values in a firm by using financial instruments to manage risk exposure.”
Well, talking in a broad sense, it’s on point but this doesn’t even begin to cover the entire particulars of risk management.
This article will provide a superficial idea of the major risks involved and also a little insight to them. To master every nook and cranny of the niche, you can join the courses and workshop on ecadema and learn from an online professional finance training, and finance certification program.
Let’s dive into these risks,
1. Operational risks:
When you imperil a risk of incurring losses directly or indirectly due to failures and inadequacy of internal systems, people, process or external factors like a failure in infrastructure, environment, and others, it is called Operational risks. These risks can be curtailed to revamp the least amount of loss in risks and in some cases they can also be abolished.
2. Foreign exchange risks:
When a firm deals or operates their process and makes transactions in a currency different from their domestic currency, then an unfavorable risk of exchange rate arises between the transactional currency and the domestic currency. This type of risk is called Foreign exchange risk, FX risk, or currency rate risk.
Businesses that are dependent on the import and export of goods, or have their operations running in different countries are more vulnerable to this risk. Fluctuation in the exchange rate of currencies can either affect the product prices heavily or can hinder the ease of business tremendously, which increases the viscosity in the economic health of business.
When a borrower or client is unable to revise their unpaid debts, or borrowed money, then the losses to be incurred come under the category of Credit risk.
While establishing the limits for credit risk the factors that are to be considered are loss of principal, loss of interest, collection cost, service cost, and others. The easiest and simplest way to determine this risk is to run a credit risk analysis on the potential client or borrower. While other methods of reducing the risk involve insurance, holding assets as collateral, or having a debt guaranteed by a third party.
4. Reputation Risk
This is one of the most abstract risks in Financial risk management and it is unpredictable. The loss of social capital, market share, or financial capital arising due to the smudged image or reputation of the company’s name in the market.
The image or reputation is an intangible concept and is, therefore, unpredictable. The financial status or the state of the operations of any major or minor firm can be directly affected by the tarnished name or association with the company.
One of the most recent examples of this is the beer company Corona, due to the namesake virus, the company saw a huge decline in its sales and shareholders. And due the presence of a hyperactive social media a lot of companies can face the backlash for their actions or their employees’ actions, for better or worse. And this makes reputation risk the most intangible of all the risk factors out there.
Procuring more info about the risk managements’ dos and don’ts can be gathered by online professional finance training, and finance certification program offered by ecadema.