A casual chat with a chartered accountant (CA) the other day sent my mind racing. I started thinking apprentice CAs go through an arduous training programme which includes guided work experience and a series of tough exams. They get to see the business processes that lie behind the accounting entries. In the field, CA students observe a dichotomy between theory and practice because human beings are not perfect. So, they observe motivations keenly, a good way to predict behaviours.
On qualifying, CAs can hit the ground running. They are ready to take on challenging roles in commerce, the government, and the not-for-profit sector - the NGOs. Continuous learning is the norm for professional accountants, the route to career advancement. My acquaintance mentioned a number of interesting areas that chartered accountants engaged in independent practice are venturing into.
Turning sick companies around (making them healthy again) suit professional accountants well. Companies become rickety for reasons that have been well documented. Common among these are over-trading, fund diversion, lack of planning, and mismatch between assets and liabilities. Over-trading happens when more credit is extended to buyers than received from sellers. This leads to strained working capital and often crimps trading. The situation may be alleviated by injecting equity capital, especially when profits are not high enough. The equity multiplier ratio (total assets divided by equity) indicates whether a company has a thin equity base. Risk increases with higher ratios.
When money generated by the business is diverted for other purposes, it is called fund diversion. The floodgates to a host of problems are thus opened, one of them being creditors not getting paid on time. Ultimately, operations may grind to a halt. Another -- lack of planning becomes evident when entrepreneurs give way to impulses. Call it seat of the pants management, a whimsical way to operate is dreaded by lenders.
Another serious problem is when a mismatch occurs between assets and liabilities; put another way, when long-lived assets are financed via short-term liabilities. Resultantly, liabilities become due but assets cannot be converted into cash quickly enough. Reason being: capital assets cannot be transformed into cash directly; productive capacity manufactures goods which are, in turn, sold and converted into cash.
Internal audit is an area which is getting greater prominence as Bangladeshi companies experience growth and become more sophisticated. Before one appreciates this concept, one has to understand 'internal control'. The expression 'checks and balances' aptly describes the internal control function. Think of a restaurant. In the absence of strict controls over cash, sales and purchases the owner will surely be staring at losses. Narrowly defined internal audit, through a battery of tests, checks the efficacy of internal control. Extensive training in or exposure to, internal auditing is excellent grooming for management roles.
Lastly, when we subscribe to an initial public offering (IPO) we perhaps fail to realise the drudgery that goes to bring it about. Just visualise the huge regulatory requirements to be satisfied and the voluminous information content of the prospectus. All of this is done to protect public interest.
Chartered accountants are ideally suited to fixing weaknesses in the accounting information system, culling the information, checking for authenticity, and presenting these as per the requirements of the Bangladesh Securities and Exchange Commission (BSEC).This nitpicking work is time consuming.