ACCOUNTS PSDA 1

BY: ADITI GUPTA

MBA (I & B)

ROLL NO: 07

RECENT TRENDS AND PRACTICES IN THE FIELD OF:

FINANCIAL ACCOUNTING
A number of emerging trends that are
shaping the accounting industry for
the future, providing more
opportunities to businesses of all
sizes and efficiency to their
accountants.
Some of these trends that will shape
the future of accounting will be:
A-Automation and AI
The accounting industry has evolved quite a bit over the
years, and while cognitive and automated technology like
AI and robotics will take on an increasing portion of the in-
manual work segment in the industry, we are still a long
way from when robots start analyzing data with logic, that
is similar to a human, and which will help them come to
practical conclusions.

However, Artificial Intelligence is quite important and it’s

growing at a steady pace because it’s successful in
optimizing costing processes and admin tasks. This also
results in various structural changes. AI helps provide
many opportunities for accountants; this will help gain new
levels of workflow efficiency as well.

One of the future trends in accounting profession includes

adopting automation. If you look at small business owners
you will notice that they never have enough time, and the
reason is they are busy following up on late invoices that
haven’t been paid. They are also busy dealing with other
annual processes/audits/taxes, as well.

Automating accounting platforms will allow business

owners to skip any mundane tasks like dealing with
invoices and bill charges, and focus on their vital
functions. Automation will also help accountants find data
and access it easily.
B-Blockchain
The blockchain is a distributed ledger that is made in a way so
that if a fraudulent transaction is attempted, or someone tries to
“spend” the same amount twice, the blockchain will reject the
transaction. It’s a form of “trustless trust”, and does not need big
institutions like banks to work.
Blockchain has the potential to enhance the accounting
profession and take it to the next level, which is why it’s
considered as one of the new trends in accounting. It can reduce
maintenance costs and help reconcile ledgers. Blockchain is a
popular choice for accounting in IT industry because it helps
provide ownership and clarity over the history of assets. It can
help accountants free their resources and concentrate on
valuation and planning.

Blockchain is the next big thing in accounting because it will lead

to more transactional-level accounting. This also means that
accountants should enhance their knowledge and skillsets to
assess the real economic interpretation of blockchain records
while connecting them with economic valuation and reality.

Accountants can also work as company advisers, they can

provide advice on weighing the costs and benefits of using the
blockchain system. If you have a combination of business and
financial knowledge, then you can be a key advisor to businesses
who are approaching the recent trends in accounting.
C- Cloud
The overall adoption of cloud accounting today is between
45% and 58%, depending on the size of the company,
according to Accounting Today 2018, survey.

The study mentions that 45% of small, 57% of midsized

and 58% of large businesses select cloud accounting over
desktop ones.

Another study by Accounting Today said that by 2026, the

global market for accounting software will have a value of
$11.8 billion.

Cloud accounting software is a major accounting trend to

look out for in 2020. This is because the cloud will allow
companies to go global with their business. The
employees and clients will be able to access the same
application and files from any location. Cloud accounting
will also have a good layer of security and it will keep the
data safe from hackers. Cloud technology has provided
business owners with a new way of working. You can
transfer information easily and in real-time while providing
bookkeeping services at an affordable rate. It also
eliminates any need to install and maintain accounting
software on the company computer.
D-Data Analysis and Science
You may wonder how data analytics can affect an accountant’s role. Well,
an accountant already works with big data and data analytic outputs that
help them assess business performances within the company framework.
They also use the analytic reports to look at the latest trends and any
unusual activities within the industry. It’s important that accountants have
the following skills to stay ahead in a data-driven world-

 Excellent technical skills- this will allow them to understand data and
will allow them to manipulate it as well.
 Understand the business context- Accountants need to solve a
business problem or address questions about future trends in
accounting; this will allow them to understand data analysis and the
company’s business flow.
 Analytical mindset- This means that an accountant must have an
inquisitive personality.
 Advanced Excel- Even though the recent trends in accounting are
released daily, most data scientists prefer working with excel sheets.
But, they tend to use excel sheets at their highest potential, which
includes sophisticated data tables, report automation, statistical
functions, along with self-correcting models.

 Advanced Revenue Analytics- If you want to add profit to your

business, then the fastest way to do so is through smart pricing
techniques and optimization of sales channels. The
latest accounting trends suggest that accounting professionals need
to be aware of the company’s pricing structure, proceed with the
correct data, and apply the math that is required.

 Visualization: Most people think visualization means “over-the-top”

graphs and diagrams, when it should mean the ability to reformat any
data insights that will lead to easy consumption, depending on the
target audience. Accounting professionals should be able to
aggregate the same data from many perspectives. This will allow the
information to be easily identified. It will also help the company
navigate through any challenges in the business’s external
environment.
E – E-commerce:
Another one of the latest additions in the list of new
trends in accounting is E-commerce. E-commerce
began during the 1970s, and it ushered in the era of
credit cards, mail order catalogs, overnight delivery,
and the concept of shopping at home. The internet
has managed to take e-commerce to another level
by making it a shopping alternative as well.

Even though the e-commerce industry is

continuously growing, it does not change the
existence of any professional guidelines. This
means that even if an accounting firm wants to
adapt to any e-commerce concepts, they will have to
know the basics of the traditional guidelines in order
to adapt to the new economy.

The information and technology that comes with e-

commerce can help accountants by providing details
that are meaningful and will allow them to find the
true cost of products. It will also allow them to match
the true cost of products with advertising expenses.
F- Faster Fraud Detection:
In the accounting industry, financial institutions will
face fraud charges at some point. This can cause
significant damage to the company’s reputation, a
huge loss of revenue, and additional legal costs to
settle the case. It’s always said that prevention is
better than cure, which is why one of the recent
trends in accounting companies is fast fraud
monitoring. This would include creating a digital
approval workflow that will help you filter out the
suspicious invoices and delete any duplicate
payments. You can also utilize new trends in
accounting which feature documents that are
secure and possess tools that process invoices; this
process will decrease fraud as well. When you take
up the proper precautions with accounting in the IT
industry, it will help you avoid any fraud problems
and helps your business maintain ideal customer
trust, while generating a constant revenue stream.
HUMAN RESOURCE ACCOUNTING

Using Artificial Intelligence

Nearly every industry uses artifical intelligence (AI) to simplify its
processes. Human resources is no different. One of 2020’s HR
trends is incorporating more AI tools into everyday operations for
better efficiency and workflow.

“For most companies, their first implementation of AI based HR

tools is in talent acquisition,” explains Deepti Chopra, Co-founder
of Adaface. “Companies that embrace AI will see significant
reduction in time-to-hire, and measurable improvement in the
candidate experience.” For example, using chatbots to
correspond with candidates would free up hours of your time each
week.
HR professionals can also use AI to:

 Verify experience and education listed on candidates’

resumes
 Spot behaviors that indicate an employee wants to leave the
company
 Manage employee performance
 Answer employees’ HR questions
 Customize suggestions for career paths, professional
development options, etc. for each employee
 Detect anomalies in behavior that could indicate time theft,
corruption or other misconduct.
More Remote Employees
4.7 million people work remotely in the US, and that number has
increased exponentially due to the outbreak of COVID-19. With so
many people working from home, HR departments face a unique
set of challenges. For instance, how do you:

 make employees feel a sense of company community?

 manage employee productivity and morale?
 operate when employees are located in different time
zones?
 investigate concerns and complaints when you don’t see the
people in-person?

Remote work does have some upsides. HR manager Stephanie

Lane says that it “allows flexibility for employee scheduling, and it
also expands the pool of talent which a company can hire from.”
Employees with no commute and more flexible hours are often
more productive, too.
In addition, employers save money with a remote staff. Fewer in-
office employees means:

 Fewer perks (e.g. snack closet, coffee machine, parking

spots)
 Smaller offices with less overhead
 Fewer office supplies to buy
Organizing Virtual Team Building

With employees located in different cities, states and countries, you can’t
rely on traditional team building activities. HR professionals have to get
creative, offering virtual team building ideas to managers to help teams
bond.
Michael Alexis, CEO of Team Building, says that “as more teams work from
home, some organizations will figure
out how to make [virtual team building] a long term plan.”
His company offers video-call-based activities where far-flung teammates
can have fun together even though they’re not physically together. These
include virtual versions of office olympics and a “campfire” complete with
s’mores.
Alexis’s other suggestions include:

 Tea vs. Coffee: Each team member receives a package of tea and
coffee samples to taste together during a virtual hangout.
 Museum Hack: Remote teams learn storytelling skills in a fun, guided
environment.

Automation of Tasks
HR professionals have a lot to do and often not enough time or staff to
complete it all. Reduce your workload by automating the following tasks:

 Payroll
 Billable time management
 Recruitment and onboarding
 Records management
 Employee benefits management
 Employee evaluations
 Tax documentation
 it easy to track, manage and resolve workplace incidents and
misconduct quickly to improve operations, spot trends and manage
risk.
Data-Driven Strategies

HR professionals have to make dozens of decisions every

day, each one a choice that could potentially change the
direction of the company. You have to accepting or reject
candidates, choose benefits plans and workplace perks,
plan events and evaluate employees with no guidance
except your instincts.
Use data-driven HR strategies to:
 Choose candidates based on performance capability,
skill set and potential to work for you long-term
 Determine risk factors for leaving and eliminate them
for better retention
 Gather insight into how to better engage and motivate
employees
 Create training modules that adapt to employees’
learning style and pace
 Find areas of risk in your organization and implement
training to address them
FORENSIC ACCOUNTING

Criminal Investigations
A Forensic Accountant is normally called for in case of a criminal investigation, if it entails
financial and other related frauds. The Investigative Agencies (EOW, CID, SFIO, etc), regulatory
bodies (SEBI, TRAI, etc) and other stake-holders seek for these services from them as and when
required. earlier, we were of the belief that detection and prevention of frauds or white-collar
crimes is a part of conventional accounting function. But the recognition of Forensic Accounting
has changed this notion of ours that “Auditor is a watchdog and not a bloodhound”. They only
check for the compliance of a company’s books to GAAPs, auditing standards and company
policies. Thus, a forensic accountant is a financial detective with a suspicious mind who can pull
out the latent truth and assist in dispute resolution. Stakeholders and ownership disputes:
These assignments often involve a detailed analysis of financial records over a period for
quantifying the issues in a dispute. For example, amount payable to a deceased partner or legal
heirs of a deceased partner. Insurance and other related claims: Insurance policies differ
significantly as to their terms and conditions. Accordingly, these assignments involve an in-
depth review of the policy to investigate coverage issues and the appropriate method of
quantifying the economic losses resulting from an event. These assignments demand great
knowledge of the forensic accountant in the local laws and regulations in place. For example,
motor accidents, loss on account of fire, natural calamities, business discontinuance, etc.

Business related Fraud investigation

Business investigations involve asset identification and recovery, tracing funds, forensic
intelligence gathering and due diligence reviews. These investigations are carried out with the
objective of determining the existence, nature, and extent of fraud and may concern the
identification of perpetrator. These investigations often involve interviews of personnel who
had access to the funds and a detailed review of the documentary evidence. Dispute
settlement: Business firms engage forensic accountants to handle contract disputes,
construction claims, product liability claims, infringement of patent and trade marks cases,
liability arising from breach of contracts and so on. Matrimonial dispute cases: Forensic
accountants entertain cases pertaining to matrimonial disputes wherein their role is merely
confined to tracing, locating and evaluating any form of asset involved. Thus, we see how
forensic accountants help the organizations or individuals and society at large. They are an
indispensable part of today’s legal team.
Data mining techniques
It is a set of assisted techniques designed to automatically mine large
volumes of data for new, hidden or unexpected informations or
patterns. Data mining techniques are categorized in three ways:
Discovery, Predictive modeling and Deviation and Link analysis. It
discovers the usual knowledge or patterns in data, without a predefined
idea or hypothesis about what the pattern may be, i.e. without any
prior knowledge of fraud. It explains various affinities, association,
trends and variations in the form of conditional logic. In predictive
modeling, patterns discovered from the database are used to predict
the outcome and to guess data for new value items

AATs
AATs are computer Programs developed for assisting auditors. Forensic
Accounting software comes in two different varieties – data extraction
software and financial analysis software. Data extraction software is
designed to conduct spreadsheet analysis on all the company’s
computer database records, such as billings, accounts receivable,
payroll, purchasing, etc. This helps in detecting anomalies and calls for
investigation. Financial analysis software uses monthly, quarterly or
annual financial statements and benchmarks the ratios between
different accounts such as billings by revenues or supply costs as a
percentage of revenue. India’s economy has been rising for the past
few years. But this rise is accompanied by some evils as well. India has
also been experiencing white-collar crimes and scams for the past few
years. Thus, the need of Forensic Accountants was realised. Forensic
Accountants played a major role in letting the cat out of the bag in the
2008 Satyam scam. Of late, the CWG and 2G scams are in limelight in
India. They are having a major role in these scams as well. While
Forensic Accounting developed as early as 1995 in USA, it put its first
step in India just few years back. Forensic Research Foundation has
been established in India for the investigation of fraud. Another
international investigation organisation has also put its feet on the
Indian land. Serious Fraud Investigation Office (SFIO) is another
noteworthy organisation set up in India for serving the same purpose.

Computer Assisted Auditing Tools (CAATs)

CAATs are computer programs developed for assisting auditors.
Forensic Accounting software comes in two different varieties – data
extraction software and financial analysis software. Data extraction
software is designed to conduct spreadsheet analysis on all the
company’s computer database records, such as billings, accounts
receivable, payroll, purchasing, etc. This helps in detecting anomalies
and calls for investigation. Financial analysis software uses monthly,
quarterly or annual financial statements and benchmarks the ratios
between different accounts such as billings by revenues or supply costs
as a percentage of revenue.

Ratio Analysis
Data analysis ratios are used for detecting fraud. These ratios help in tracing the
possible symptoms of fraud. Such commonly employed ratios are – (i) the ratio of
the highest value to the lowest value (max/min) (ii) the ratio of the highest value
to the second highest value (max1 /max2) Besides the above-mentioned ratios,
the financial ratios also help a forensic accountant. Ratios help in estimating costs,
identifying deviations, etc.
SUSTAINABILITY ACCOUNTING

Setting science-based targets

With 2020 fast approaching, many businesses will be looking to set new
emissions targets, and Science-Based targets are quickly becoming the
new industry standard. This aligns emissions reduction targets with the
Paris Climate Agreement’s aim to keep global temperature increases
below 2°C, compared to pre-industrial levels. Since April 2018 the
number of companies that have either set or committed to a science-
based target has more than doubled, recently exceeding 500.

As uptake increases, the business case for setting such ambitious

targets is becoming ever clearer. The 2018 STOXX Global Climate
Leaders Index showed that companies who are pro-actively reducing
their carbon footprint are consistently outperforming their
counterparts. In the long term, those who set a science-based target
are better placed to adapt to a more controlled playing field, as
governments begin imposing greater environmental regulations.

ESG investing

Increasingly investors are looking beyond market short-

termism and shifting their focus to more long-term
socially responsible investments. By considering
environmental, social and corporate governance (ESG)
within decision-making, the hope is to generate financial
returns that also deliver a positive societal impact.
Mutual funds for ESG investing has grown by over 60%
since 2012 and has now surpassed $1tn. In conjunction,
there has been increased divestment away from
companies that fail to take ESG issues into consideration.

Growing research suggests that as well as demonstrating

good corporate citizenship, companies who integrate ESG
issues within their operations improve their financial
performance. Between 2005 and 2010, companies with
the highest ESG ratings experienced the lowest volatility
in earnings per share, contrasting the volatility of those
who performed poorly.

Impact reporting
As governments begin to look beyond the realms of GDP
indicators, investors are also looking for the incorporation
of societal and environmental impact within a company’s
valuation. Consequently there is set to be a predicted
uptake in the number of businesses undertaking
assessments on their impacts in relation to natural and
social capitals.

Despite this growing trend, there is little cohesion

between the different methodologies used to measure
these impacts, making the value non-financial
externalities difficult to translate. In an attempt to create
a standardised methodology, 2018 saw the World
Business Council for Sustainable Development launch the
Social and Human Capital Coalition, to sit alongside the
Natural Capital Coalition. While in their infancy, these
frameworks provide a more consistent approach by which
to measure and value an organisation’s environmental
and societal impact.

Cohesion between frameworks

In order to address the issue of ‘framework’ fatigue,

leading frameworks and standards such as GRI, CDP and
SASB have established the Corporate Reporting Dialogue.
At the end of 2018 they announced a two-year project
focused on better aligning their respective indicators and
requirements.

While individual frameworks will continue to be tailored

for different focuses and audiences, each will be mapped
to identify commonalities and differences, with continual
refinements being made to improve overlap. The project
will also identify how non-financial metrics relate to
financial outcomes, looking at how they can be
incorporated into mainstream reports. This ties in with
the Corporate Reporting Dialogues ultimate aim of
integrating financial and non-financial reporting.

Use of technology to address supply chain risk

As the need to keep global temperatures

within the 2 degree threshold is
continually stressed, more and more
companies are beginning to take greater
ownership of emissions that sit outside
their operational control. A recent survey
by HSBC of 8,500 companies showed that
one in five have taken greater control of
their supply chain in the past five years.
Looking forward, 85% of those surveyed
want to achieve a sustainability standard
recognised by their sector or market.
Throughout 2019 and beyond, emerging
technologies such as smart sensors, data
analytics and blockchain will help
companies more effectively manage their
supply chain. Smart sensors facilitate the
collection and sharing of multiple streams
of data, allowing companies to engage
with suppliers and assess their
performance against their scope 3
targets.
Artificial intelligence can utilise this real
time data feed by automatically
scheduling tasks to optimise efficiency.
Data analytics can then provide insight
into these efficacy savings for reporting
purposes. The wealth of information
collected can be securely validated using
blockchain technology, as each
transaction is given a unique digital
signature, with all parties accessing this
information from a single database.

INFLATION ACCOUNTING
Current Purchasing Power Method – It involves
adjustment of financial accounts to price changes. A
general price index is used to convert the values of
various items. It takes into account the purchasing power
of money and ignores the rise and fall in the price of an
item. It involves adjustment of historical figures at current
purchasing power which id done through multiplication of
the historical figures by a conversion factor.

Conversion factor can be calculated using the formula

below –

 Conversion factor = Price Index at time of

conversion / Price Index at the date of conversion
  CPP Value = Conversion Amount or Historical Value
x Conversion Factor
(2) Current Cost Accounting – Under this method assets
are shown at current costs and profits are determined on
the basis of costs at the date of sale rather than the actual
cost.

(3) Current Value – Under this method all assets and

liabilities are measured at current value at which they
could be sold or settled at the current date.

(4) Replacement Cost Accounting – Under this method

all assets and liabilities are recorded on a balance sheet
according to the cost of replacing them rather than their
historical costs.