This article is written by Ms. Somya Jain from the Vivekananda Institute of Professional Studies. The article recognises the role and the relevant laws governing both an accountant and accounting software and its underlying advantages and disadvantages. It also enumerates the option which is more viable to be incorporated.
Table of Contents
Introduction
Accounting plays an important role as far as businesses are concerned. It enhances the management of the company by keeping a check on all the funds and expenses incurred. With the growing businesses, the need to manage the accounts of the firms escalates. It becomes necessary for entrepreneurs to establish a niche for their firms by creating a fluent accounting system.
The task of accounting can be performed either by an accountant or by accounting software. But the question arises that can an accountant, who possesses relevant expertise and hands-on experience in this field, replace an accounting software, which practically gives a perfect view of the business and vice versa? Having said that, one should contemplate the pros and cons of both the accountant and the accounting software according to the business needs and decide which one to opt for.
Role of an accountant
With proliferating complexities in the arena of the corporate world, the need to hire an accountant cannot be undermined. Although small day-to-day tasks can be performed by entrepreneurs themselves, the intricacies underlying the accounting systems at times need professional assistance. Accountants who are proficient to undertake compound tasks can provide with their expertise, certain finesse in the analytical functions and advisory matters which cannot be effectuated by accounting software. Their performance can help one’s business to cultivate and achieve better financial growth.
Laws governing the functions of an accountant
The functions of the accountant are governed by the Chartered Accountants Act, 1949 (hereinafter CA Act). According to Section 2(1)(h) of the CA Act, a registered accountant means an accountant who is registered under the Register of Accounts maintained by the central government. Section 2(2) of the Act enumerates the functions of an accountant in consideration of the remuneration provided. These are:
- He can practice transactions related to accountancy
- The accountant can perform auditing, verification of financial transactions, books, accounts or records, preparation of financial accounts and related statements. He can also represent himself as an accountant to the public at large.
- He can render professional assistance to the companies in accounting procedures and present the financial data and the underlying facts.
- Further, functions can also be performed as approved by the Institute of Chartered Accountants.
In furtherance of Section 2(2)(iv) of the CA Act, a resolution was passed by the council which expanded the scope of practice by the accountants. They can now provide the entire range of “Management Consultancy and other services”. Clause 3 of the resolution states that the accountant in practice can act as an advisor, consultant, trustee, executor, administrator, liquidator, etc. it can also advise the firm on matters related to the issue of securities and can handle all the documentation regarding the same such as drafting of the prospectus, filing of documents with SEBI, preparation of publicity budgets, advice regarding selection of brokers, etc.
Advantages of an accountant
Considering the endeavours made on behalf of an accountant, benefits are accrued by the businesses in the long run. The value added by an accountant in the business cannot be denied. In common parlance, the tasks performed by the accountant create a unique position of the enterprise in the industry, placing it on a pedestal as compared to its competitors. With this background in mind, some of the advantages of hiring an accountant are stated below. These are:
1. Customised financial planning
The accountant can create a customised financial plan according to the requirements of the company. This goes beyond a budget and may include investment advice, portfolio diversification, and general business guidance. Considering the financial goals of an enterprise, the accountant builds a scheme that would allocate the entire funds of the firm proportionately amongst various departments and scrutinize the expenses with every possibility to reduce them further. The accountant, as far as possible, establishes a low-cost project based on future goals and helps entrepreneurs to achieve the same. This enables the corporate entity to get better results than its competing firms.
2. Possible tax deductions
Filing tax returns and finding the possible legal tax deductions can be comprehensively deduced by an accountant. Even though this task can be performed by entrepreneurs themselves, it is time-consuming and truncates the focus from essential entrepreneurial activities. Further, the entrepreneurs lack tax experience which ends in costing them largely. To minimise such expenses, it is viable to hire an accountant who would also render an edge to the firm.
3. Complex accounting issues
Accountant resolves complex accounting issues with certain finesse which cannot be performed by accounting software. When complications in finance crop up, it is the expertise and experience of an accountant which plays a major role in resolving the matter at hand with utmost proficiency. Handling such problems is part and parcel of the work profile of such accountants that are handled daily.
4. Personal touch
Hiring an accountant provides the firm with an advanced benefit of a personal advisor. The role played by an accountant can be extended to providing personal financial advice which would be fruitful for the business. Being well aware of the situation of the firm and the underlying risks and contingencies, the accountant can rightly advise the owners by creating a financial map that can provide relevant solutions for the same. No accounting software can provide solutions for such contingencies.
Disadvantages of an accountant
While on one hand, accountants add extensive benefits to the firm but on the other hand, its downside cannot be neglected. The professional assistance provided by an accountant is undeniably advantageous for the business but is it viable to hire an accountant when a financial crunch or for that matter low budget is prevalent in the firm? The expertise of the accountant may not at all times be necessary which may end up costing the owners way more than their expectations. Some of the disadvantages of hiring an accountant are:
1. Costly services
Firstly, the services rendered by the accountant can be very expensive for the firm. For a simple tax filing, they can charge twice the amount which is generally observed in the market. Further, for additional advisory matters, they charge exorbitantly making it infeasible for small businesses to hire a professional accountant.
Secondly, many a time, the firm does not require the dexterity of the accountant as most of the tasks are repetitive in nature like reimbursements, processing invoices and keeping a track of the bank statement. This makes their services costlier as compared to the services provided by accounting software in this regard. It is thus feasible for a firm to implement their funds in a better resource.
2. Time-consuming
The tasks performed by an accountant generally take up to days of research and paperwork which is not only time-consuming but also shoots up the cost of the owner. while on the other hand with proficient accounting software the entire task can be completed in the nick of time.
3. Lacking in requisite skills
Companies, especially small firms, tend to hire accountants without conducting a complete background check. This is later suffered by the entrepreneurs when these accountants lack expertise and the required skills which are necessary to perform essential tasks. A prior reference check can be a useful way to ensure the legitimacy of an accountant.
Misrepresenting oneself to be an accountant is another problem faced by companies. In pursuance to secure a job within a firm, people represent themselves as accountants even though they are not. Section 24 of the CA Act, penalises the person who misrepresents himself to be an accountant. Accorthis to this Section, anyone who not being a member of the institute represents himself to be an accountant will be punished with a fine of one thousand rupees. If there is another conviction for the same type of offence, then the person will be convicted with imprisonment which may extend up to six months or a fine of five thousand rupees or with both. Thus, companies should make sure that the accountants that they hire are registered accountants who are qualified enough to handle their tasks.
Role of an accounting software
There has been a paradigm shift from working manually to working through the use of technology. Considering the current scenario, technology has created a great impact on our lives. The fact cannot be denied that with advancement in time every task can be performed using online resources in a convenient and timely manner. Everything can be brought to you at your fingertips with just a single click. With a boom in the technological industry, other industries such as business, textile, banking, software, etc. have started exploring the different operations of technology in their respective fields. Experiencing great results by using technology, these industries have opted for its application in their day-to-day lives.
The business industry has also encountered the benefits of using the technology in their expert areas. Similarly, accounting software has benefitted entrepreneurs largely. It has made it easier for them to manage their business and finances with a certain level of prowess and comfort. Most industry-leading tools have affordable plans for businesses of all sizes and can handle a wide range of bookkeeping, accounting, and even tax-related tasks. In this way, accounting software is valuable as a budget-friendly, time-saving tool for managing your business finances. Some renowned accounting software are QuickBooks Plus, Meru Accounting, Sage Software, Working Point, Wave Accounting, etc.
Laws governing the functioning of accounting software
On 24th March 2021 Ministry of Corporate Affairs (MCA), notified certain amendments to the provisions of the Companies (Accounts) Rules, 2014 and the Companies (Audit and Auditors) Rules, 2014 under the Companies Act, 2013. According to the proviso for Rule 3(1) of the Company (Accounts) Amendment Rules, 2021, every company which uses accounting software for maintaining the ledgers and books of accounts, have to use only those software that is enriched with the feature of recording audit trail of every transaction. Companies should place edit logs in the corresponding accounting software so that every change made in the books is recorded along with the date of such change. The accounting software must be reconfigured such that the audit trails cannot be disabled.
Subsequently, on 1st April 2021 the Companies (Audit and Auditors) Amendment Rules, 2021 was instituted to amend Companies (Audits and Auditors) Rules 2014. According to this, an auditor will be appointed to check whether the company is maintaining its audit trail and edit logs for its accounting software throughout.
Advantages of an accounting software
With the developing technology, the complexities arising in the business can be easily resolved to provide a wholesome view of the firm. It is an all-around tool that maximises the performance of an enterprise. It can be efficient enough to complete all the tasks with perfection. As compared to the manual services of an accountant, accounting software can be speedier, cost-efficient, and easy to handle. Considering the utility provided by the accounting software, some of the advantages are enlisted below. These are:
1. Cost-effective
Installing accounting software does not cost the owner much. Generally, the accounting software costs less than the average cost of an accountant. Businesses having a small budget can easily afford superior quality accounting software which can produce results a cut above what an accountant produces. Further, accounting software provides for a predictable and persistent cost to the enterprises while an accountant can charge variable fees for its services.
2. Automation
Accounting software provides ease in doing business by eliminating the tedious manual functions performed by an accountant. These software programs can automatically sync all the financial data of the firm and categorize them according to the needs of the owner. Within no time all the essential data and services are produced before him in a streamlined manner that can help him make an informed decision. Added to this, it also provides timely reporting and efficient analysis measures.
3. Compatibility
Accounting software is compatible which means that data can be easily shared and integrated with other software. This can be especially seen in times of merger. When the need to integrate the entire data of two firms arises, accounting software can achieve this goal within a short span of time in the most efficient and structured manner. It also cuts any additional cost which might have been incurred if the same was performed by an accountant.
4. Advanced features
Various accounting software incorporates advanced features which further enhance the performance of financial planning. One such feature is the OCR function. This function entitles the computers or smartphones to read “text” and digitise these documents, making the recording of transactions quicker and more efficient. Accounting software also provides various templates for invoices which can also be customized according to the needs of the firm.
Disadvantages of an accounting software
Although, the strengths and merits of using accounting software are far-reaching it being at a rudimentary stage is undeniable. Technology is a developing concept and remains unexplored in many fields and functionalities. Further, it lacks certain subtlety when applied to complex tasks. Compared to the performance of an accountant, accounting software cannot bore fruits in the desired way. There lie some disadvantages of using the same in the business field as well. These are:
1. Fraudulent transactions
In recent times, technology has opened gateways for fraudulent activities being conducted by hackers online. Transacting through online means like sharing data, making payments, integrating bank details and other financial tasks are stored online which becomes more prone to being misused. In order to avoid the same, extra layers of additional security has to be included along with the installation of the accounting software. In no way this costs less rather the owners end up spending more than what would have been the average cost of employing an accountant.
According to Section 43A of the (Indian) Information Technology Act, 2000 any body corporate, which deals with handling sensitive personal data or information, if fails to maintain and implement reasonable security practices that result in loss to another, then such body corporate will be liable to compensate the person so aggrieved. Further, Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 establishes procedures and practices for a body corporate or any person on behalf of a body corporate, which deals with collecting, storing, receiving, possessing sensitive and personal information of clients.
2. Inadequate training and experience
Using software systems requires certain skills to be comprehended before performing any tasks. The constant up-gradation in these softwares makes it necessary for the owner to train himself and get hands-on experience on it. Many times, special training has to be imparted in this regard, which one cannot learn without professional help. This may further add up to the already existing cost making it expensive for entrepreneurs, especially for small enterprises.
Conclusion
Looking at the pros and cons of both the accountant and accounting software, no universally accepted answer can be enumerated. Each of them offers unique benefits to the firm, innovative and time-saving solutions that ultimately result in gratifying results to the owners. The businesses should evaluate each scheme according to their financial requirements and select the most feasible option. Having said that, integration of the two can maximise the potential of the business. The expertise of the accountant consolidated with the advanced features and ease of accounting software can provide new heights to the business. The advantages of one can overcome the disadvantages of another. Regardless of the strategy adopted, both methods form a coherent system providing a complete overview of the firm.
References
- Should You Hire an Accountant or Use Accounting Software? • Revuezzle
- Mandatory to use accounting software with audit trail: MCA (cleartax.in)
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