Accountant North Vancouver

Accountant North Vancouver

Accounting consulting

Partner with us, and let's propel your enterprise to new heights together.

Accountant North Vancouver - Financial consulting

  1. Personal finance consulting
  2. Business incorporation services
  3. Best bookkeeping services
  4. Accounting services
  5. Tax specialist services
  6. Best accounting services
  7. GST/PST filing
  8. Accounting for legal professionals
  9. Personal tax services
  10. CFO services
  11. Outsourced accounting services
  12. Financial planning
  13. Accounting for startups
  14. Tax accounting
  15. Small business accounting software
  16. Accounting training
  17. Cloud accounting solutions
  18. Debt management
  19. Payroll processing
  20. Tax compliance
With IBB's guidance, that startup secures a significant investment, streamlining operations and scaling up faster than anticipated.

Accountant North Vancouver - Tax audit assistance

  1. Accounting for rental properties
  2. Financial statement preparation
  3. Tax planning
  4. Certified public accountant (CPA)
  5. Chartered accountant
  6. Accounting technology solutions
  7. Forensic accounting
  8. Accounting for independent contractors
  9. Estate and trust tax planning
  10. Investment accounting
  11. Partnership accounting
  12. Accounting software setup
  13. Accounting for remote workers
  14. Income tax preparation
  15. Accounting for nonprofit organizations
  16. Certified accountants
  17. Financial advisory services
  18. CPA firms
  19. Small business tax advising
  20. Accounting for Airbnb hosts
Learn more about Accountant North Vancouver here We'll help you adjust strategies as your business evolves, ensuring you're always on the right track. That's why we don't offer one-size-fits-all solutions. We pride ourselves on our responsiveness, ensuring that your queries are met with timely and clear answers.
Meanwhile, reevaluate your payables strategy. Learn more about IBB Accounting & Tax Services here. Read more about Accountant North Vancouver here Their integrity is what sets them apart, making them not just a service provider but a trusted partner in your financial journey. With IBB's support, your payroll system can become a cornerstone of your business's success. This expansion means you've now got more comprehensive support tailored to the unique needs of your business, covering everything from simple tax filings to complex tax planning strategies.
This bespoke service ensures that every decision is informed and every opportunity is seized, maximizing your financial potential.

Accountant North Vancouver - Best accounting software for businesses

  1. Retail accounting
  2. Business tax return preparation
  3. Accounting for realtors
  4. Construction accounting
  5. Professional bookkeeping
  6. Tax consulting
  7. HST/GST tax filing
  8. Nonprofit accounting
  9. Year-end financial statements
  10. Accounting for franchises
  11. Accounting for tech startups
  12. Real estate accounting
  13. Free consultation accounting services
  14. Financial risk management
  15. Income tax strategies
  16. Bookkeeping services
  17. Hospitality industry accounting
  18. CRA audit help
Therefore, they offer practical advice and strategies to manage your finances effectively, minimize taxes, and optimize your resources. That's why we're meticulous in our approach, ensuring that every audit we conduct meets the highest standards of accuracy and integrity. That's why we're here to take the burden off your shoulders.

Accountant North Vancouver - Estate planning accounting

  1. Tax audit assistance
  2. Estate planning accounting
  3. QuickBooks accounting
  4. Accounting for consultants
  5. Accounting for rental properties
  6. Financial statement preparation
  7. Tax planning
  8. Certified public accountant (CPA)
  9. Chartered accountant
  10. Accounting technology solutions
  11. Forensic accounting
  12. Accounting for independent contractors
  13. Estate and trust tax planning
  14. Investment accounting
  15. Partnership accounting
  16. Accounting software setup
  17. Accounting for remote workers
  18. Income tax preparation
  19. Accounting for nonprofit organizations

This focus on sustainability is reshaping consumer preferences and, consequently, the local business landscape.

Accountant North Vancouver - Cost accounting

  1. Accounting for remote workers
  2. Income tax preparation
  3. Accounting for nonprofit organizations
  4. Certified accountants
  5. Financial advisory services
  6. CPA firms
  7. Small business tax advising
  8. Accounting for Airbnb hosts
  9. Tax-efficient investment strategies
  10. Virtual accounting services
  11. Accounting firm reviews
  12. Personal tax accountant
  13. Corporation tax filing
  14. Accounting for medical professionals
  15. International tax accounting
  16. Business growth consulting
  17. Accounting for import/export businesses
With over two decades of experience in Accountant North Vancouver, they've built a reputation for reliability, precision, and exceptional customer service. Let's handle the complexities of financial compliance, so you can keep your eyes on the horizon. Engaging with us means you're backed by a team that genuinely cares about your growth and financial health.

Choosing IBB, you're not just getting an accountant; you're gaining a partner who's invested in your success. Retailers, service providers, and manufacturers all benefit from IBB's keen understanding of tax regulations and loopholes. Armed with this insight, we craft bespoke strategies designed to not only meet but exceed your expectations. You won't have to worry about deadlines, paperwork, or the IRS knocking at your door.

This means if you're in real estate, they're up to speed on property tax laws and investment strategies. Automation tools also play a crucial role, reducing the risk of human error and freeing up your schedule to focus on core business activities. They'll handle the nitty-gritty of your financials, allowing you to focus on growing your business.

Accountant North Vancouver - Tax compliance

  1. Bookkeeping services
  2. Hospitality industry accounting
  3. CRA audit help
  4. Professional accounting services
  5. Accounting for home-based businesses
  6. Digital accounting
  7. Self-employment tax preparation
  8. Budgeting and forecasting
  9. Sole proprietorship accounting
  10. Accounting for artists
  11. Financial reporting
  12. Personal finance consulting
  13. Business incorporation services
  14. Best bookkeeping services
  15. Accounting services
  16. Tax specialist services
  17. Best accounting services
  18. GST/PST filing
  19. Accounting for legal professionals


Streamlining your payroll processes can also enhance employee satisfaction. Whether you're navigating the complexities of the real estate market or tackling the dynamic challenges of the IT sector, they've got you covered. It's about crafting a strategy that aligns with your business goals, ensuring you're not just surviving but thriving.

Building on their personalized approach to financial management, IBB Accounting & Tax Services offers a comprehensive suite of services designed to meet every aspect of your financial needs. They enable you to make informed decisions quickly, reducing the risk of financial missteps. With IBB, you'll get access to user-friendly financial dashboards that consolidate all your financial data in one place.



Accountant North Vancouver - Best accounting software for businesses

  1. E-commerce accounting
  2. Accounting for freelancers
  3. Tax compliance
  4. Tax audit assistance
  5. Estate planning accounting
  6. QuickBooks accounting
  7. Accounting for consultants
  8. Accounting for rental properties
  9. Financial statement preparation
  10. Tax planning
  11. Certified public accountant (CPA)
  12. Chartered accountant
  13. Accounting technology solutions
  14. Forensic accounting
  15. Accounting for independent contractors
  16. Estate and trust tax planning
  17. Investment accounting
  18. Partnership accounting
  19. Accounting software setup

Accounting And Bookkeeping North Vancouver

Development was slow at the outset. The population of the district in the 1901 census was only 365 people. Keith joined Edwin Mahon and together they controlled North Vancouver Land & Improvement Company. Soon the pace of development around the foot of Lonsdale began to pick up. The first school was opened in 1902. The district was able to build a municipal hall in 1903 and actually have meetings in North Vancouver (instead of in Vancouver where most of the landowners lived). The first bank and first newspaper arrived in 1905. In 1906 the BC Electric Railway Company opened up a street car line that extended from the ferry wharf up Lonsdale to 12th Street. By 1911 the streetcar system extended west to the Capilano River and east to Lynn Valley.

Citations and other links

Investment tips to help you make the most out of your money

With that in mind, how and what should you invest on in order to make the most out of your money? Here are some ideas! Invest in an index fund Index funds are a standard investment option and they are very reliable, unlike other investment options. You always want to have a solid investment opportunity […] The post Investment tips to help you make the most out of your money appeared first on IBBINC.

Posted by on 2025-02-02

Do you really need insurance?

Depending on your needs, you might require a variety of insurance solutions, or maybe just a few. But one thing is certain, you never know when an accident can happen or when you might need money and financial protection. That’s why it’s imperative to have an insurance policy, since it can prevent many of the […] The post Do you really need insurance? appeared first on IBBINC.

Posted by on 2025-02-02

Benefits of segregated funds in a Tax-free Savings Account

A Tax-free Savings Account (TFSA) can be a valuable addition to your overall investment strategy. Each year residents of Canada who are at least 18 years of age are allowed to invest up to $6,500* into their TFSA, in addition to any previously unused contribution room. This savings option allows you to grow your savings […] The post Benefits of segregated funds in a Tax-free Savings Account appeared first on IBBINC.

Posted by on 2025-02-02

Manufacturing Accounting Accountant North Vancouver

At IBB Accounting & Tax Services, your success is our business. They'll help you navigate GST/HST complexities, payroll tax requirements, and cross-border tax issues, ensuring compliance while minimizing your liabilities. You'll find that IBB doesn't just stop at compliance and bookkeeping.

Accountant North Vancouver - Online tax filing

  1. Tax-efficient investment strategies
  2. Virtual accounting services
  3. Accounting firm reviews
  4. Personal tax accountant
  5. Corporation tax filing
  6. Accounting for medical professionals
  7. International tax accounting
  8. Business growth consulting
  9. Accounting for import/export businesses
  10. Tax deduction optimization
  11. Tax resolution services
  12. Corporation tax accountant
  13. Retail accounting
  14. Business tax return preparation
  15. Accounting for realtors
  16. Construction accounting
  17. Professional bookkeeping
  18. Tax consulting
  19. HST/GST tax filing
  20. Nonprofit accounting
With their expertise, clients achieve not just growth but confidence in their financial future. That's why we start by getting to know you, your business model, and your long-term objectives.

Whether you're planning for your future, dealing with inheritance issues, or simply trying to optimize your tax return, we've got your back. IBB's commitment to providing industry-specific solutions also extends to tax planning and compliance, where understanding the nuances of your sector can significantly impact your bottom line.

Accountant North Vancouver - Corporate tax accounting

  1. QuickBooks accounting
  2. Accounting for consultants
  3. Accounting for rental properties
  4. Financial statement preparation
  5. Tax planning
  6. Certified public accountant (CPA)
  7. Chartered accountant
  8. Accounting technology solutions
  9. Forensic accounting
  10. Accounting for independent contractors
  11. Estate and trust tax planning
  12. Investment accounting
  13. Partnership accounting
  14. Accounting software setup
  15. Accounting for remote workers
  16. Income tax preparation
  17. Accounting for nonprofit organizations
  18. Certified accountants
  19. Financial advisory services
The result? This approach ensures you're not caught off guard by tax obligations and can make informed decisions that benefit your financial future.

Moreover, we're committed to helping you understand the regulatory environment of Accountant North Vancouver. You'll find that their approach isn't one-size-fits-all. Whether you're running a startup or managing a well-established company, IBB's team of experts works closely with you to identify and implement the accounting practices that best fit your operational structure and financial goals. They anticipate changes in the market, adjust strategies accordingly, and keep you informed every step of the way.

Starting with IBB Accounting & Tax Services is straightforward and designed to set your business on the path to financial clarity and success. While we ensure your estate is meticulously planned, it's also crucial to address the variety of risks that can impact your financial health. Imagine having a clear financial picture at any given moment. This diversification not only strengthens the economy but also presents unique opportunities and challenges for businesses operating in the area.

Manufacturing Accounting Accountant North Vancouver
Accounting and Tax Services Accountant North Vancouver

Accounting and Tax Services Accountant North Vancouver

This top-rated firm in Accountant North Vancouver prides itself on its client-first approach, making it easier than ever for you to get in touch, ask questions, and receive the assistance you need. Whether you're looking to secure your family's future, invest wisely, or minimize taxes, our experts are on hand to provide the guidance you need.

Accountant North Vancouver - Online tax filing

  1. CPA firms
  2. Small business tax advising
  3. Accounting for Airbnb hosts
  4. Tax-efficient investment strategies
  5. Virtual accounting services
  6. Accounting firm reviews
  7. Personal tax accountant
  8. Corporation tax filing
  9. Accounting for medical professionals
  10. International tax accounting
  11. Business growth consulting
  12. Accounting for import/export businesses
  13. Tax deduction optimization
  14. Tax resolution services
  15. Corporation tax accountant
This not only reduces the likelihood of errors but also frees up your time to concentrate on strategic planning and development. Their team is responsive, ensuring that your concerns are addressed promptly.

But it doesn't stop there. These stories showcase how IBB doesn't just crunch numbers; they transform businesses. IBB stays on the cutting edge of these changes, providing you with the most current advice.

Accountant North Vancouver - E-commerce accounting

  1. Personal tax services
  2. CFO services
  3. Outsourced accounting services
  4. Financial planning
  5. Accounting for startups
  6. Tax accounting
  7. Small business accounting software
  8. Accounting training
  9. Cloud accounting solutions
  10. Debt management
  11. Payroll processing
  12. Self-employed tax services
  13. Business valuation
  14. E-commerce accounting
  15. Accounting for freelancers
  16. Tax compliance
  17. Tax audit assistance
  18. Estate planning accounting
  19. QuickBooks accounting
  20. Accounting for consultants


Tax issues loomed large, and financial mismanagement had taken its toll. Whether you're facing a new challenge or just need reassurance, our team is always a call or email away. This kind of proven track record isn't something you come across every day.

Accountant North Vancouver - Accounting consulting

  1. Accounting for realtors
  2. Construction accounting
  3. Professional bookkeeping
  4. Tax consulting
  5. HST/GST tax filing
  6. Nonprofit accounting
  7. Year-end financial statements
  8. Accounting for franchises
  9. Accounting for tech startups
  10. Real estate accounting
  11. Free consultation accounting services
  12. Financial risk management
  13. Income tax strategies
  14. Bookkeeping services
  15. Hospitality industry accounting
  16. CRA audit help


Building on our industry-specific expertise, let's explore how our tailored approaches have driven success for our clients across various sectors. They understand that no two businesses are alike, and that's why their tax solutions are as unique as your venture. It's built on hard work, dedication, and a deep understanding of the financial landscape.

Accountant North Vancouver Advisory Services

They'll help you maximize deductions and credits specific to your industry, significantly reducing your tax liability. From crafting customized tax strategies that could save you a small fortune to navigating the complex maze of business financial planning and wealth management, they've got you covered. Here, you can find more details about their services, team, and even book consultations online. Your future's stability hinges on effective retirement planning, and we're here to craft a strategy that's as unique as you are. IBB's expertise means you won't miss out on these critical insights.

As we explore the myriad ways IBB Accounting & Tax Services can transform the financial management of your business, you'll see why local entrepreneurs don't just consider them an option, but a necessity for success. We start by getting to know your business inside and out, identifying the specific challenges you face and the goals you're aiming to achieve. IBB's history isn't just about the years they've been in business; it's about the relationships they've built and the trust they've earned.

Accountant North Vancouver - Business restructuring accounting

  1. Certified accountants
  2. Financial advisory services
  3. CPA firms
  4. Small business tax advising
  5. Accounting for Airbnb hosts
  6. Tax-efficient investment strategies
  7. Virtual accounting services
  8. Accounting firm reviews
  9. Personal tax accountant
  10. Corporation tax filing
  11. Accounting for medical professionals
  12. International tax accounting
  13. Business growth consulting
  14. Accounting for import/export businesses
  15. Tax deduction optimization
  16. Tax resolution services
  17. Corporation tax accountant
  18. Retail accounting
  19. Business tax return preparation
This history of excellence isn't just their past; it's their promise to you for the future.

Our commitment doesn't end with setting up your tailored accounting solution. At IBB Accounting & Tax Services, we understand that handling payroll can be a complex and time-consuming task. So, if you're aiming for long-term success, consider the benefits of year-round consultation with IBB Accounting & Tax Services. Your financial well-being is our top priority, and with IBB Accounting & Tax Services by your side, you'll have the confidence to make informed decisions that propel you towards financial success.

Accountant North Vancouver - Tax audit assistance

  1. Outsourced accounting services
  2. Financial planning
  3. Accounting for startups
  4. Tax accounting
  5. Small business accounting software
  6. Accounting training
  7. Cloud accounting solutions
  8. Debt management
  9. Payroll processing
  10. Corporate tax accounting
  11. Online tax filing
  12. Accounting for musicians
  13. Small business accounting
  14. Business advisory services
  15. Self-employed tax services
  16. Business valuation


By identifying these risks early, we're able to craft strategies that mitigate them effectively. At IBB Accounting & Tax Services, we're committed to keeping you ahead of the curve. We understand that keeping track of your finances can be daunting, especially when you're juggling other aspects of your business. We start by listening to you, understanding your financial aspirations, and identifying any challenges you may face along the way.

Accountant North Vancouver Advisory Services
Corporate tax accountant Accountant North Vancouver
Corporate tax accountant Accountant North Vancouver

With our expertise, you'll no longer need to worry about the intricacies of tax withholdings, year-end tax forms, or compliance with government regulations. Whether you're looking for comprehensive tax services, tailored financial strategies, or support for business growth, their team is equipped to guide you towards financial clarity and success.

Accountant North Vancouver - Cost accounting

  1. Year-end financial statements
  2. Accounting for franchises
  3. Accounting for tech startups
  4. Real estate accounting
  5. Free consultation accounting services
  6. Financial risk management
  7. Income tax strategies
  8. Bookkeeping services
  9. Hospitality industry accounting
  10. CRA audit help
  11. Professional accounting services
  12. Accounting for home-based businesses
  13. Digital accounting
  14. Self-employment tax preparation
  15. Budgeting and forecasting
  16. Sole proprietorship accounting
  17. Accounting for artists
  18. Financial reporting
For healthcare professionals, we navigate the complex landscape of medical billing and compliance. This level of accessibility and adaptability ensures that managing your finances is as convenient and stress-free as possible, giving you one less thing to worry about. IBB Accounting & Tax Services specializes in crafting personalized tax strategies that align with your business goals, ensuring you're not only compliant but also maximizing potential tax benefits.

You're likely navigating a sea of challenges, from tax planning to financial strategy, and it's essential to have a partner that not only understands your unique needs but also tailors solutions to fit your business perfectly. Why not explore how our tailored accounting solutions have propelled Accountant North Vancouver businesses to success through their own stories? We dive deep into the trends, regulations, and financial nuances specific to your field, ensuring the advice we give isn't just general but genuinely applicable to your business. We're your partners in planning for the future, offering insights that can transform your business operations and financial outcomes.

By setting aside a portion of your profits, you're not just safeguarding your company against unforeseen expenses; you're also laying the groundwork for future expansion and investment opportunities. Furthermore, we understand that tax season can be stressful. This means you can say goodbye to the days of sifting through piles of paperwork or multiple software systems to get a clear picture of your business's financial health.

Accountant North Vancouver - Tax audit assistance

  1. Accounting consulting
  2. Financial consulting
  3. Best accounting software for businesses
  4. Cost accounting
  5. Business restructuring accounting
  6. Cash flow management
  7. Corporate tax accounting
  8. Online tax filing
  9. Accounting for musicians
  10. Small business accounting
  11. Business advisory services
  12. Self-employed tax services
  13. Business valuation
  14. E-commerce accounting
  15. Accounting for freelancers
  16. Tax compliance
  17. Tax audit assistance
  18. Estate planning accounting
Our team at IBB Accounting & Tax Services boasts an impressive array of credentials, ensuring you're in capable hands.

We're committed to adapting your plan as your life evolves, ensuring you're always on the best path toward achieving your retirement goals. They tailor their services to align with your strategic objectives, ensuring that your financial records aren't only accurate but also insightful for making informed decisions. Letting IBB handle your tax compliance means you can focus more on what you do best-running your business. Let's be your guide in building a secure and prosperous financial future.

Accountant North Vancouver Payroll and Tax Filing Services

With IBB Accounting & Tax Services by your side, you're not just getting software solutions. Let's start building your legacy today. Whether you're a small business owner, an entrepreneur, or an individual seeking to optimize your financial situation, IBB Accounting tailors its services to meet your unique needs.

Accountant North Vancouver - Self-employed tax services

  1. Tax deduction optimization
  2. Tax resolution services
  3. Corporation tax accountant
  4. Retail accounting
  5. Business tax return preparation
  6. Accounting for realtors
  7. Construction accounting
  8. Professional bookkeeping
  9. Tax consulting
  10. HST/GST tax filing
  11. Nonprofit accounting
  12. Year-end financial statements
  13. Accounting for franchises
  14. Accounting for tech startups
  15. Real estate accounting
  16. Free consultation accounting services
  17. Financial risk management
  18. Income tax strategies
Meanwhile, technology firms benefit from our expertise in claiming research and development tax credits, a crucial factor in fostering innovation and growth.
You're in search of a beacon of trust and expertise in Accountant North Vancouver, and IBB Accounting & Tax Services promises to be just that. That's why we're here to take the load off your shoulders. They're committed to accommodating your needs, offering evening and weekend appointments upon request.
For over 20 years, they've been the beacon for countless individuals and businesses, offering not just accounting and tax services, but a partnership built on trust and personalized financial solutions. They've embraced the latest in software and digital tools to ensure your financial operations aren't just efficient, but also secure. Let's navigate the complexities of the business world together, ensuring your company not only survives but thrives.
Our team is equipped to handle all your bookkeeping needs, from managing invoices and receipts to reconciling bank statements and preparing financial reports. Moreover, IBB understands the intricacies of Accountant North Vancouver's business landscape.

Accountant North Vancouver - Business valuation

  1. Professional accounting services
  2. Accounting for home-based businesses
  3. Digital accounting
  4. Self-employment tax preparation
  5. Budgeting and forecasting
  6. Sole proprietorship accounting
  7. Accounting for artists
  8. Financial reporting
  9. Personal finance consulting
  10. Business incorporation services
  11. Best bookkeeping services
  12. Accounting services
  13. Tax specialist services
  14. Best accounting services
  15. GST/PST filing
  16. Accounting for legal professionals
  17. Personal tax services
  18. CFO services
With IBB Accounting & Tax Services by your side, you can focus on growing your business, knowing your financial integrity is in expert hands.

Explore Accountant North Vancouver here
Accountant North Vancouver Payroll and Tax Filing Services

 

Accounting, also known as accountancy, is the process of recording and processing information about economic entities, such as businesses and corporations.[1][2] Accounting measures the results of an organization's economic activities and conveys this information to a variety of stakeholders, including investors, creditors, management, and regulators.[3] Practitioners of accounting are known as accountants. The terms "accounting" and "financial reporting" are often used interchangeably.[4]

Accounting can be divided into several fields including financial accounting, management accounting, tax accounting and cost accounting.[5] Financial accounting focuses on the reporting of an organization's financial information, including the preparation of financial statements, to the external users of the information, such as investors, regulators and suppliers.[6] Management accounting focuses on the measurement, analysis and reporting of information for internal use by management to enhance business operations.[1][6] The recording of financial transactions, so that summaries of the financials may be presented in financial reports, is known as bookkeeping, of which double-entry bookkeeping is the most common system.[7] Accounting information systems are designed to support accounting functions and related activities.

Accounting has existed in various forms and levels of sophistication throughout human history. The double-entry accounting system in use today was developed in medieval Europe, particularly in Venice, and is usually attributed to the Italian mathematician and Franciscan friar Luca Pacioli.[8] Today, accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statements are usually audited by accounting firms,[9] and are prepared in accordance with generally accepted accounting principles (GAAP).[6] GAAP is set by various standard-setting organizations such as the Financial Accounting Standards Board (FASB) in the United States[1] and the Financial Reporting Council in the United Kingdom. As of 2012, "all major economies" have plans to converge towards or adopt the International Financial Reporting Standards (IFRS).[10][11]

History

[edit]
Portrait of Luca Pacioli, painted by Jacopo de' Barbari, 1495 (Museo di Capodimonte)

Accounting is thousands of years old and can be traced to ancient civilizations.[12][13][14] One early development of accounting dates back to ancient Mesopotamia and is closely related to developments in writing, counting and money;[12] there is also evidence of early forms of bookkeeping in ancient Iran,[15][16] and early auditing systems by the ancient Egyptians and Babylonians.[13] By the time of Emperor Augustus, the Roman government had access to detailed financial information.[17]

Many concepts related to today's accounting seem to be initiated in medieval's Middle East. For example, Jewish communities used double-entry bookkeeping in the early-medieval period[18][19] and Muslim societies, at least since the 10th century also used many modern accounting concepts.[20]

The spread of the use of Arabic numerals, instead of the Roman numbers historically used in Europe, increased efficiency of accounting procedures among Mediterranean merchants,[21] who further refined accounting in medieval Europe.[22] With the development of joint-stock companies, accounting split into financial accounting and management accounting.

The first published work on a double-entry bookkeeping system was the Summa de arithmetica, published in Italy in 1494 by Luca Pacioli (the "Father of Accounting").[23][24] Accounting began to transition into an organized profession in the nineteenth century,[25][26] with local professional bodies in England merging to form the Institute of Chartered Accountants in England and Wales in 1880.[27]

Etymology

[edit]
Early 19th-century ledger

Both the words "accounting" and "accountancy" were in use in Great Britain by the mid-1800s and are derived from the words accompting and accountantship used in the 18th century.[28] In Middle English (used roughly between the 12th and the late 15th century), the verb "to account" had the form accounten, which was derived from the Old French word aconter,[29] which is in turn related to the Vulgar Latin word computare, meaning "to reckon". The base of computare is putare, which "variously meant to prune, to purify, to correct an account, hence, to count or calculate, as well as to think".[29]

The word "accountant" is derived from the French word compter, which is also derived from the Italian and Latin word computare. The word was formerly written in English as "accomptant", but in process of time the word, which was always pronounced by dropping the "p", became gradually changed both in pronunciation and in orthography to its present form.[30]

Terminology

[edit]

Accounting has variously been defined as the keeping or preparation of the financial records of transactions of the firm, the analysis, verification and reporting of such records and "the principles and procedures of accounting"; it also refers to the job of being an accountant.[31][32][33]

Accountancy refers to the occupation or profession of an accountant,[34][35][36] particularly in British English.[31][32]

Topics

[edit]

Accounting has several subfields or subject areas, including financial accounting, management accounting, auditing, taxation and accounting information systems.[5]

Financial accounting

[edit]

Financial accounting focuses on the reporting of an organization's financial information to external users of the information, such as investors, potential investors and creditors. It calculates and records business transactions and prepares financial statements for the external users in accordance with generally accepted accounting principles (GAAP).[6] GAAP, in turn, arises from the wide agreement between accounting theory and practice, and changes over time to meet the needs of decision-makers.[1]

Financial accounting produces past-oriented reports—for example financial statements are often published six to ten months after the end of the accounting period—on an annual or quarterly basis, generally about the organization as a whole.[6]

Management accounting

[edit]

Management accounting focuses on the measurement, analysis and reporting of information that can help managers in making decisions to fulfill the goals of an organization. In management accounting, internal measures and reports are based on cost–benefit analysis, and are not required to follow the generally accepted accounting principle (GAAP).[6] In 2014 CIMA created the Global Management Accounting Principles (GMAPs). The result of research from across 20 countries in five continents, the principles aim to guide best practice in the discipline.[37]

Management accounting produces past-oriented reports with time spans that vary widely, but it also encompasses future-oriented reports such as budgets. Management accounting reports often include financial and non financial information, and may, for example, focus on specific products and departments.[6]

Intercompany accounting

[edit]

Intercompany accounting focuses on the measurement, analysis and reporting of information between separate entities that are related, such as a parent company and its subsidiary companies. Intercompany accounting concerns record keeping of transactions between companies that have common ownership such as a parent company and a partially or wholly owned subsidiary. Intercompany transactions are also recorded in accounting when business is transacted between companies with a common parent company (subsidiaries).[38][39]

Auditing

[edit]

Auditing is the verification of assertions made by others regarding a payoff,[40] and in the context of accounting it is the "unbiased examination and evaluation of the financial statements of an organization".[41] Audit is a professional service that is systematic and conventional.[42]

An audit of financial statements aims to express or disclaim an independent opinion on the financial statements. The auditor expresses an independent opinion on the fairness with which the financial statements presents the financial position, results of operations, and cash flows of an entity, in accordance with the generally accepted accounting principles (GAAP) and "in all material respects". An auditor is also required to identify circumstances in which the generally accepted accounting principles (GAAP) have not been consistently observed.[43]

Information systems

[edit]

An accounting information system is a part of an organization's information system used for processing accounting data.[44] Many corporations use artificial intelligence-based information systems. The banking and finance industry uses AI in fraud detection. The retail industry uses AI for customer services. AI is also used in the cybersecurity industry. It involves computer hardware and software systems using statistics and modeling.[45]

Many accounting practices have been simplified with the help of accounting computer-based software. An enterprise resource planning (ERP) system is commonly used for a large organisation and it provides a comprehensive, centralized, integrated source of information that companies can use to manage all major business processes, from purchasing to manufacturing to human resources. These systems can be cloud based and available on demand via application or browser, or available as software installed on specific computers or local servers, often referred to as on-premise.

Tax accounting

[edit]

Tax accounting in the United States concentrates on the preparation, analysis and presentation of tax payments and tax returns. The U.S. tax system requires the use of specialised accounting principles for tax purposes which can differ from the generally accepted accounting principles (GAAP) for financial reporting.[46] U.S. tax law covers four basic forms of business ownership: sole proprietorship, partnership, corporation, and limited liability company. Corporate and personal income are taxed at different rates, both varying according to income levels and including varying marginal rates (taxed on each additional dollar of income) and average rates (set as a percentage of overall income).[46]

Forensic accounting

[edit]

Forensic accounting is a specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or litigation.[47] "Forensic" means "suitable for use in a court of law", and it is to that standard and potential outcome that forensic accountants generally have to work.

Political campaign accounting

[edit]

Political campaign accounting deals with the development and implementation of financial systems and the accounting of financial transactions in compliance with laws governing political campaign operations. This branch of accounting was first formally introduced in the March 1976 issue of The Journal of Accountancy.[48]

Organizations

[edit]

Professional bodies

[edit]

Professional accounting bodies include the American Institute of Certified Public Accountants (AICPA) and the other 179 members of the International Federation of Accountants (IFAC),[49] including Institute of Chartered Accountants of Scotland (ICAS), Institute of Chartered Accountants of Pakistan (ICAP), CPA Australia, Institute of Chartered Accountants of India, Association of Chartered Certified Accountants (ACCA) and Institute of Chartered Accountants in England and Wales (ICAEW). Some countries have a single professional accounting body and, in some other countries, professional bodies for subfields of the accounting professions also exist, for example the Chartered Institute of Management Accountants (CIMA) in the UK and Institute of management accountants in the United States.[50] Many of these professional bodies offer education and training including qualification and administration for various accounting designations, such as certified public accountant (AICPA) and chartered accountant.[51][52]

Firms

[edit]

Depending on its size, a company may be legally required to have their financial statements audited by a qualified auditor, and audits are usually carried out by accounting firms.[9]

Accounting firms grew in the United States and Europe in the late nineteenth and early twentieth century, and through several mergers there were large international accounting firms by the mid-twentieth century. Further large mergers in the late twentieth century led to the dominance of the auditing market by the "Big Five" accounting firms: Arthur Andersen, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers.[53] The demise of Arthur Andersen following the Enron scandal reduced the Big Five to the Big Four.[54]

Standard-setters

[edit]

Generally accepted accounting principles (GAAP) are accounting standards issued by national regulatory bodies. In addition, the International Accounting Standards Board (IASB) issues the International Financial Reporting Standards (IFRS) implemented by 147 countries.[1] Standards for international audit and assurance, ethics, education, and public sector accounting are all set by independent standard settings boards supported by IFAC. The International Auditing and Assurance Standards Board sets international standards for auditing, assurance, and quality control; the International Ethics Standards Board for Accountants (IESBA)[55] sets the internationally appropriate principles-based Code of Ethics for Professional Accountants; the International Accounting Education Standards Board (IAESB) sets professional accounting education standards;[56] and International Public Sector Accounting Standards Board (IPSASB) sets accrual-based international public sector accounting standards.[57][4]

Organizations in individual countries may issue accounting standards unique to the countries. For example, in Australia, the Australian Accounting Standards Board manages the issuance of the accounting standards in line with IFRS. In the United States the Financial Accounting Standards Board (FASB) issues the Statements of Financial Accounting Standards, which form the basis of US GAAP,[1] and in the United Kingdom the Financial Reporting Council (FRC) sets accounting standards.[58] However, as of 2012 "all major economies" have plans to converge towards or adopt the IFRS.[10]

Education, training and qualifications

[edit]

Degrees

[edit]

At least a bachelor's degree in accounting or a related field is required for most accountant and auditor job positions, and some employers prefer applicants with a master's degree.[59] A degree in accounting may also be required for, or may be used to fulfill the requirements for, membership to professional accounting bodies. For example, the education during an accounting degree can be used to fulfill the American Institute of CPA's (AICPA) 150 semester hour requirement,[60] and associate membership with the Certified Public Accountants Association of the UK is available after gaining a degree in finance or accounting.[61]

A doctorate is required in order to pursue a career in accounting academia, for example, to work as a university professor in accounting.[62][63] The Doctor of Philosophy (PhD) and the Doctor of Business Administration (DBA) are the most popular degrees. The PhD is the most common degree for those wishing to pursue a career in academia, while DBA programs generally focus on equipping business executives for business or public careers requiring research skills and qualifications.[62]

Professional qualifications

[edit]

Professional accounting qualifications include the chartered accountant designations and other qualifications including certificates and diplomas.[64] In Scotland, chartered accountants of ICAS undergo Continuous Professional Development and abide by the ICAS code of ethics.[65] In England and Wales, chartered accountants of the ICAEW undergo annual training, and are bound by the ICAEW's code of ethics and subject to its disciplinary procedures.[66]

In the United States, the requirements for joining the AICPA as a Certified Public Accountant are set by the Board of Accountancy of each state, and members agree to abide by the AICPA's Code of Professional Conduct and Bylaws.

The ACCA is the largest global accountancy body with over 320,000 members, and the organisation provides an 'IFRS stream' and a 'UK stream'. Students must pass a total of 14 exams, which are arranged across three levels.[67]

Research

[edit]

Accounting research is research in the effects of economic events on the process of accounting, the effects of reported information on economic events, and the roles of accounting in organizations and society.[68][69] It encompasses a broad range of research areas including financial accounting, management accounting, auditing and taxation.[70]

Accounting research is carried out both by academic researchers and practicing accountants. Methodologies in academic accounting research include archival research, which examines "objective data collected from repositories"; experimental research, which examines data "the researcher gathered by administering treatments to subjects"; analytical research, which is "based on the act of formally modeling theories or substantiating ideas in mathematical terms"; interpretive research, which emphasizes the role of language, interpretation and understanding in accounting practice, "highlighting the symbolic structures and taken-for-granted themes which pattern the world in distinct ways"; critical research, which emphasizes the role of power and conflict in accounting practice; case studies; computer simulation; and field research.[71][72]

Empirical studies document that leading accounting journals publish in total fewer research articles than comparable journals in economics and other business disciplines,[73] and consequently, accounting scholars[74] are relatively less successful in academic publishing than their business school peers.[75] Due to different publication rates between accounting and other business disciplines, a recent study based on academic author rankings concludes that the competitive value of a single publication in a top-ranked journal is highest in accounting and lowest in marketing.[76]

Scandals

[edit]

The year 2001 witnessed a series of financial information frauds involving Enron, auditing firm Arthur Andersen, the telecommunications company WorldCom, Qwest and Sunbeam, among other well-known corporations. These problems highlighted the need to review the effectiveness of accounting standards, auditing regulations and corporate governance principles. In some cases, management manipulated the figures shown in financial reports to indicate a better economic performance. In others, tax and regulatory incentives encouraged over-leveraging of companies and decisions to bear extraordinary and unjustified risk.[77]

The Enron scandal deeply influenced the development of new regulations to improve the reliability of financial reporting, and increased public awareness about the importance of having accounting standards that show the financial reality of companies and the objectivity and independence of auditing firms.[77]

In addition to being the largest bankruptcy reorganization in American history, the Enron scandal undoubtedly is the biggest audit failure[78] causing the dissolution of Arthur Andersen, which at the time was one of the five largest accounting firms in the world. After a series of revelations involving irregular accounting procedures conducted throughout the 1990s, Enron filed for Chapter 11 bankruptcy protection in December 2001.[79]

One consequence of these events was the passage of the Sarbanes–Oxley Act in the United States in 2002, as a result of the first admissions of fraudulent behavior made by Enron. The act significantly raises criminal penalties for securities fraud, for destroying, altering or fabricating records in federal investigations or any scheme or attempt to defraud shareholders.[80]

Fraud and error

[edit]

Accounting fraud is an intentional misstatement or omission in the accounting records by management or employees which involves the use of deception. It is a criminal act and a breach of civil tort. It may involve collusion with third parties.[81]

An accounting error is an unintentional misstatement or omission in the accounting records, for example misinterpretation of facts, mistakes in processing data, or oversights leading to incorrect estimates.[81] Acts leading to accounting errors are not criminal but may breach civil law, for example, the tort of negligence.

The primary responsibility for the prevention and detection of fraud and errors rests with the entity's management.[81]

See also

[edit]

References

[edit]
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[edit]

 

Finance refers to monetary resources and to the study and discipline of money, currency, assets and liabilities.[a] As a subject of study, it is related to but distinct from economics, which is the study of the production, distribution, and consumption of goods and services.[b] Based on the scope of financial activities in financial systems, the discipline can be divided into personal, corporate, and public finance.

In these financial systems, assets are bought, sold, or traded as financial instruments, such as currencies, loans, bonds, shares, stocks, options, futures, etc. Assets can also be banked, invested, and insured to maximize value and minimize loss. In practice, risks are always present in any financial action and entities.

Due to its wide scope, a broad range of subfields exists within finance. Asset-, money-, risk- and investment management aim to maximize value and minimize volatility. Financial analysis assesses the viability, stability, and profitability of an action or entity. Some fields are multidisciplinary, such as mathematical finance, financial law, financial economics, financial engineering and financial technology. These fields are the foundation of business and accounting. In some cases, theories in finance can be tested using the scientific method, covered by experimental finance.

The early history of finance parallels the early history of money, which is prehistoric. Ancient and medieval civilizations incorporated basic functions of finance, such as banking, trading and accounting, into their economies. In the late 19th century, the global financial system was formed.

In the middle of the 20th century, finance emerged as a distinct academic discipline,[c] separate from economics.[1] The earliest doctoral programs in finance were established in the 1960s and 1970s.[2] Today, finance is also widely studied through career-focused undergraduate and master's level programs.[3][4]

The financial system

[edit]
Bond issued by The Baltimore and Ohio Railroad. Bonds are a form of borrowing used by corporations to finance their operations.
Share certificate dated 1913 issued by the Radium Hill Company
NYSE's stock exchange traders floor c 1960, before the introduction of electronic readouts and computer screens
Chicago Board of Trade Corn Futures market, 1993
Oil traders, Houston, 2009

As outlined, the financial system consists of the flows of capital that take place between individuals and households (personal finance), governments (public finance), and businesses (corporate finance). "Finance" thus studies the process of channeling money from savers and investors to entities that need it. [d] Savers and investors have money available which could earn interest or dividends if put to productive use. Individuals, companies and governments must obtain money from some external source, such as loans or credit, when they lack sufficient funds to run their operations.

In general, an entity whose income exceeds its expenditure can lend or invest the excess, intending to earn a fair return. Correspondingly, an entity where income is less than expenditure can raise capital usually in one of two ways: (i) by borrowing in the form of a loan (private individuals), or by selling government or corporate bonds; (ii) by a corporation selling equity, also called stock or shares (which may take various forms: preferred stock or common stock). The owners of both bonds and stock may be institutional investors—financial institutions such as investment banks and pension funds—or private individuals, called private investors or retail investors. (See Financial market participants.)

The lending is often indirect, through a financial intermediary such as a bank, or via the purchase of notes or bonds (corporate bonds, government bonds, or mutual bonds) in the bond market. The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary earns the difference for arranging the loan.[6][7][8] A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity.

Investing typically entails the purchase of stock, either individual securities or via a mutual fund, for example. Stocks are usually sold by corporations to investors so as to raise required capital in the form of "equity financing", as distinct from the debt financing described above. The financial intermediaries here are the investment banks. The investment banks find the initial investors and facilitate the listing of the securities, typically shares and bonds. Additionally, they facilitate the securities exchanges, which allow their trade thereafter, as well as the various service providers which manage the performance or risk of these investments. These latter include mutual funds, pension funds, wealth managers, and stock brokers, typically servicing retail investors (private individuals).

Inter-institutional trade and investment, and fund-management at this scale, is referred to as "wholesale finance". Institutions here extend the products offered, with related trading, to include bespoke options, swaps, and structured products, as well as specialized financing; this "financial engineering" is inherently mathematical, and these institutions are then the major employers of "quants" (see below). In these institutions, risk management, regulatory capital, and compliance play major roles.

Areas of finance

[edit]

As outlined, finance comprises, broadly, the three areas of personal finance, corporate finance, and public finance. These, in turn, overlap and employ various activities and sub-disciplines—chiefly investments, risk management, and quantitative finance.

Personal finance

[edit]
Wealth management consultation—here, the financial advisor counsels the client on an appropriate investment strategy.

Personal finance refers to the practice of budgeting to ensure enough funds are available to meet basic needs, while ensuring there is only a reasonable level of risk to lose said capital. Personal finance may involve paying for education, financing durable goods such as real estate and cars, buying insurance, investing, and saving for retirement.[9] Personal finance may also involve paying for a loan or other debt obligations. The main areas of personal finance are considered to be income, spending, saving, investing, and protection. The following steps, as outlined by the Financial Planning Standards Board,[10] suggest that an individual will understand a potentially secure personal finance plan after:

  • Purchasing insurance to ensure protection against unforeseen personal events;
  • Understanding the effects of tax policies, subsidies, or penalties on the management of personal finances;
  • Understanding the effects of credit on individual financial standing;
  • Developing a savings plan or financing for large purchases (auto, education, home);
  • Planning a secure financial future in an environment of economic instability;
  • Pursuing a checking or a savings account;
  • Preparing for retirement or other long term expenses.[11]

Corporate finance

[edit]

Corporate finance deals with the actions that managers take to increase the value of the firm to the shareholders, the sources of funding and the capital structure of corporations, and the tools and analysis used to allocate financial resources. While corporate finance is in principle different from managerial finance, which studies the financial management of all firms rather than corporations alone, the concepts are applicable to the financial problems of all firms,[12] and this area is then often referred to as "business finance".

Typically, "corporate finance" relates to the long term objective of maximizing the value of the entity's assets, its stock, and its return to shareholders, while also balancing risk and profitability. This entails[13] three primary areas:

  1. Capital budgeting: selecting which projects to invest in—here, accurately determining value is crucial, as judgements about asset values can be "make or break".[14]
  2. Dividend policy: the use of "excess" funds—these are to be reinvested in the business or returned to shareholders.
  3. Capital structure: deciding on the mix of funding to be used—here attempting to find the optimal capital mix re debt-commitments vs cost of capital.

The latter creates the link with investment banking and securities trading, as above, in that the capital raised will generically comprise debt, i.e. corporate bonds, and equity, often listed shares. Re risk management within corporates, see below.

Financial managers—i.e. as distinct from corporate financiers—focus more on the short term elements of profitability, cash flow, and "working capital management" (inventory, credit and debtors), ensuring that the firm can safely and profitably carry out its financial and operational objectives; i.e. that it: (1) can service both maturing short-term debt repayments, and scheduled long-term debt payments, and (2) has sufficient cash flow for ongoing and upcoming operational expenses. (See Financial management and FP&A.)

Public finance

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President George W. Bush, speaking on the Federal Budget in 2007, requesting additional funds from Congress
CBO: 2023 US Federal Budget Infographic

Public finance describes finance as related to sovereign states, sub-national entities, and related public entities or agencies. It generally encompasses a long-term strategic perspective regarding investment decisions that affect public entities.[15] These long-term strategic periods typically encompass five or more years.[16] Public finance is primarily concerned with:[17]

Central banks, such as the Federal Reserve System banks in the United States and the Bank of England in the United Kingdom, are strong players in public finance. They act as lenders of last resort as well as strong influences on monetary and credit conditions in the economy.[18]

Development finance, which is related, concerns investment in economic development projects provided by a (quasi) governmental institution on a non-commercial basis; these projects would otherwise not be able to get financing. A public–private partnership is primarily used for infrastructure projects: a private sector corporate provides the financing up-front, and then draws profits from taxpayers or users. Climate finance, and the related Environmental finance, address the financial strategies, resources and instruments used in climate change mitigation.

Investment management

[edit]
Share prices listed in a Korean newspaper
"The excitement before the bubble burst"—viewing prices via ticker tape, shortly before the Wall Street crash of 1929
A modern price-ticker. This infrastructure underpins contemporary exchanges, evidencing prices and related ticker symbols. The ticker symbol is represented by a unique set of characters used to identify the subject of the financial transaction.

Investment management[12] is the professional asset management of various securities—typically shares and bonds, but also other assets, such as real estate, commodities and alternative investments—in order to meet specified investment goals for the benefit of investors.

As above, investors may be institutions, such as insurance companies, pension funds, corporations, charities, educational establishments, or private investors, either directly via investment contracts or, more commonly, via collective investment schemes like mutual funds, exchange-traded funds, or real estate investment trusts.

At the heart of investment management[12] is asset allocationdiversifying the exposure among these asset classes, and among individual securities within each asset class—as appropriate to the client's investment policy, in turn, a function of risk profile, investment goals, and investment horizon (see Investor profile). Here:

Overlaid is the portfolio manager's investment style—broadly, active vs passive, value vs growth, and small cap vs. large cap—and investment strategy.

In a well-diversified portfolio, achieved investment performance will, in general, largely be a function of the asset mix selected, while the individual securities are less impactful. The specific approach or philosophy will also be significant, depending on the extent to which it is complementary with the market cycle.

Additional to diversification, the fundamental risk mitigant here, investment managers will apply various hedging techniques as appropriate,[12] these may relate to the portfolio as a whole or to individual stocks. Bond portfolios are often (instead) managed via cash flow matching or immunization, while for derivative portfolios and positions, traders use "the Greeks" to measure and then offset sensitivities. In parallel, managers – active and passivewill monitor tracking error, thereby minimizing and preempting any underperformance vs their "benchmark".

A quantitative fund is managed using computer-based mathematical techniques (increasingly, machine learning) instead of human judgment. The actual trading is typically automated via sophisticated algorithms.

Risk management

[edit]
Crowds gathering outside the New York Stock Exchange after the Wall Street crash of 1929
Customers queuing outside a Northern Rock branch in the United Kingdom to withdraw their savings during the 2007–2008 financial crisis

Risk management, in general, is the study of how to control risks and balance the possibility of gains; it is the process of measuring risk and then developing and implementing strategies to manage that risk. Financial risk management[20][21] is the practice of protecting corporate value against financial risks, often by "hedging" exposure to these using financial instruments. The focus is particularly on credit and market risk, and in banks, through regulatory capital, includes operational risk.

  • Credit risk is the risk of default on a debt that may arise from a borrower failing to make required payments;
  • Market risk relates to losses arising from movements in market variables such as prices and exchange rates;
  • Operational risk relates to failures in internal processes, people, and systems, or to external events (these risks will often be insured).

Financial risk management is related to corporate finance[12] in two ways. Firstly, firm exposure to market risk is a direct result of previous capital investments and funding decisions; while credit risk arises from the business's credit policy and is often addressed through credit insurance and provisioning. Secondly, both disciplines share the goal of enhancing or at least preserving, the firm's economic value, and in this context[22] overlaps also enterprise risk management, typically the domain of strategic management. Here, businesses devote much time and effort to forecasting, analytics and performance monitoring. (See ALM and treasury management.)

For banks and other wholesale institutions,[23] risk management focuses on managing, and as necessary hedging, the various positions held by the institution—both trading positions and long term exposures—and on calculating and monitoring the resultant economic capital, and regulatory capital under Basel III. The calculations here are mathematically sophisticated, and within the domain of quantitative finance as below. Credit risk is inherent in the business of banking, but additionally, these institutions are exposed to counterparty credit risk. Banks typically employ Middle office "Risk Groups", whereas front office risk teams provide risk "services" (or "solutions") to customers.

Insurers [24] manage their own risks with a focus on solvency and the ability to pay claims: Life Insurers are concerned more with longevity risk and interest rate risk; Short-Term Insurers (Property, Health,Casualty) emphasize catastrophe- and claims volatility risks. For expected claims reserves are set aside periodically, while to absorb unexpected losses, a minimum level of capital is maintained.

Quantitative finance

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Dōjima Rice Exchange, the world's first futures exchange, established in Osaka in 1697.
Dōjima Rice Exchange, the world's first futures exchange, established in Osaka in 1697

Quantitative finance—also referred to as "mathematical finance"—includes those finance activities where a sophisticated mathematical model is required,[25] and thus overlaps several of the above.

As a specialized practice area, quantitative finance comprises primarily three sub-disciplines; the underlying theory and techniques are discussed in the next section:

  1. Quantitative finance is often synonymous with financial engineering. This area generally underpins a bank's customer-driven derivatives business—delivering bespoke OTC-contracts and "exotics", and designing the various structured products and solutions mentioned—and encompasses modeling and programming in support of the initial trade, and its subsequent hedging and management.
  2. Quantitative finance also significantly overlaps financial risk management in banking, as mentioned, both as regards this hedging, and as regards economic capital as well as compliance with regulations and the Basel capital / liquidity requirements.
  3. "Quants" are also responsible for building and deploying the investment strategies at the quantitative funds mentioned; they are also involved in quantitative investing more generally, in areas such as trading strategy formulation, and in automated trading, high-frequency trading, algorithmic trading, and program trading.

Financial theory

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DCF valuation formula widely applied in business and finance, since articulated in 1938. Here, to get the value of the firm, its forecasted free cash flows are discounted to the present using the weighted average cost of capital for the discount factor. For share valuation investors use the related dividend discount model.

Financial theory is studied and developed within the disciplines of management, (financial) economics, accountancy and applied mathematics. In the abstract,[12][26] finance is concerned with the investment and deployment of assets and liabilities over "space and time"; i.e., it is about performing valuation and asset allocation today, based on the risk and uncertainty of future outcomes while appropriately incorporating the time value of money. Determining the present value of these future values, "discounting", must be at the risk-appropriate discount rate, in turn, a major focus of finance-theory.[27]As financial theory has roots in many disciplines, including mathematics, statistics, economics, physics, and psychology, it can be considered a mix of an art and science,[28] and there are ongoing related efforts to organize a list of unsolved problems in finance.

Managerial finance

[edit]
Decision trees, a more sophisticated valuation-approach, sometimes applied to corporate finance "project" valuations (and a standard[29] in business school curricula); various scenarios are considered, and their discounted cash flows are probability weighted.

Managerial finance [30] is the branch of finance that deals with the financial aspects of the management of a company, and the financial dimension of managerial decision-making more broadly. It provides the theoretical underpin for the practice described above, concerning itself with the managerial application of the various finance techniques. Academics working in this area are typically based in business school finance departments, in accounting, or in management science.

The tools addressed and developed relate in the main to managerial accounting and corporate finance: the former allow management to better understand, and hence act on, financial information relating to profitability and performance; the latter, as above, are about optimizing the overall financial structure, including its impact on working capital. Key aspects of managerial finance thus include:

  1. Financial planning and forecasting
  2. Capital budgeting
  3. Capital structure
  4. Working capital management
  5. Risk management
  6. Financial analysis and reporting.

The discussion, however, extends to business strategy more broadly, emphasizing alignment with the company's overall strategic objectives; and similarly incorporates the managerial perspectives of planning, directing, and controlling.

Financial economics

[edit]
The "efficient frontier", a prototypical concept in portfolio optimization. Introduced in 1952, it remains "a mainstay of investing and finance".[31] An "efficient" portfolio, i.e. combination of assets, has the best possible expected return for its level of risk (represented by the standard deviation of return).
Modigliani–Miller theorem, a foundational element of finance theory, introduced in 1958; it forms the basis for modern thinking on capital structure. Even if leverage (D/E) increases, the WACC (k0) stays constant.

Financial economics[32] is the branch of economics that studies the interrelation of financial variables, such as prices, interest rates and shares, as opposed to real economic variables, i.e. goods and services. It thus centers on pricing, decision making, and risk management in the financial markets,[32][26] and produces many of the commonly employed financial models. (Financial econometrics is the branch of financial economics that uses econometric techniques to parameterize the relationships suggested.)

The discipline has two main areas of focus:[26] asset pricing and corporate finance; the first being the perspective of providers of capital, i.e. investors, and the second of users of capital; respectively:

  1. Asset pricing theory develops the models used in determining the risk-appropriate discount rate, and in pricing derivatives; and includes the portfolio- and investment theory applied in asset management. The analysis essentially explores how rational investors would apply risk and return to the problem of investment under uncertainty, producing the key "Fundamental theorem of asset pricing". Here, the twin assumptions of rationality and market efficiency lead to modern portfolio theory (the CAPM), and to the Black–Scholes theory for option valuation. At more advanced levels—and often in response to financial crises—the study then extends these "neoclassical" models to incorporate phenomena where their assumptions do not hold, or to more general settings.
  2. Much of corporate finance theory, by contrast, considers investment under "certainty" (Fisher separation theorem, "theory of investment value", and Modigliani–Miller theorem). Here, theory and methods are developed for the decisioning about funding, dividends, and capital structure discussed above. A recent development is to incorporate uncertainty and contingency—and thus various elements of asset pricing—into these decisions, employing for example real options analysis.

Financial mathematics

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The Black–Scholes formula for the value of a call option. Although lately its use is considered naive, it has underpinned the development of derivatives-theory, and financial mathematics more generally, since its introduction in 1973.[33]
"Trees" are widely applied in mathematical finance; here used in calculating an OAS. Other common pricing-methods are simulation and PDEs. These are used for settings beyond those envisaged by Black-Scholes. Post crisis, even in those settings, banks use local and stochastic volatility models to incorporate the volatility surface, while the xVA adjustments accommodate counterparty and capital considerations.

Financial mathematics[34] is the field of applied mathematics concerned with financial markets; Louis Bachelier's doctoral thesis, defended in 1900, is considered to be the first scholarly work in this area. The field is largely focused on the modeling of derivatives—with much emphasis on interest rate- and credit risk modeling—while other important areas include insurance mathematics and quantitative portfolio management. Relatedly, the techniques developed are applied to pricing and hedging a wide range of asset-backed, government, and corporate-securities.

As above, in terms of practice, the field is referred to as quantitative finance and / or mathematical finance, and comprises primarily the three areas discussed. The main mathematical tools and techniques are, correspondingly:

Mathematically, these separate into two analytic branches: derivatives pricing uses risk-neutral probability (or arbitrage-pricing probability), denoted by "Q"; while risk and portfolio management generally use physical (or actual or actuarial) probability, denoted by "P". These are interrelated through the above "Fundamental theorem of asset pricing".

The subject has a close relationship with financial economics, which, as outlined, is concerned with much of the underlying theory that is involved in financial mathematics: generally, financial mathematics will derive and extend the mathematical models suggested. Computational finance is the branch of (applied) computer science that deals with problems of practical interest in finance, and especially[34] emphasizes the numerical methods applied here.

Experimental finance

[edit]

Experimental finance[37] aims to establish different market settings and environments to experimentally observe and provide a lens through which science can analyze agents' behavior and the resulting characteristics of trading flows, information diffusion, and aggregation, price setting mechanisms, and returns processes. Researchers in experimental finance can study to what extent existing financial economics theory makes valid predictions and therefore prove them, as well as attempt to discover new principles on which such theory can be extended and be applied to future financial decisions. Research may proceed by conducting trading simulations or by establishing and studying the behavior of people in artificial, competitive, market-like settings.

Behavioral finance

[edit]

Behavioral finance studies how the psychology of investors or managers affects financial decisions and markets[38] and is relevant when making a decision that can impact either negatively or positively on one of their areas. With more in-depth research into behavioral finance, it is possible to bridge what actually happens in financial markets with analysis based on financial theory.[39] Behavioral finance has grown over the last few decades to become an integral aspect of finance.[40]

Behavioral finance includes such topics as:

  1. Empirical studies that demonstrate significant deviations from classical theories;
  2. Models of how psychology affects and impacts trading and prices;
  3. Forecasting based on these methods;
  4. Studies of experimental asset markets and the use of models to forecast experiments.

A strand of behavioral finance has been dubbed quantitative behavioral finance, which uses mathematical and statistical methodology to understand behavioral biases in conjunction with valuation.

Quantum finance

[edit]

Quantum finance involves applying quantum mechanical approaches to financial theory, providing novel methods and perspectives in the field.[41] Quantum finance is an interdisciplinary field, in which theories and methods developed by quantum physicists and economists are applied to solve financial problems. It represents a branch known as econophysics. Although quantum computational methods have been around for quite some time and use the basic principles of physics to better understand the ways to implement and manage cash flows, it is mathematics that is actually important in this new scenario[42] Finance theory is heavily based on financial instrument pricing such as stock option pricing. Many of the problems facing the finance community have no known analytical solution. As a result, numerical methods and computer simulations for solving these problems have proliferated. This research area is known as computational finance. Many computational finance problems have a high degree of computational complexity and are slow to converge to a solution on classical computers. In particular, when it comes to option pricing, there is additional complexity resulting from the need to respond to quickly changing markets. For example, in order to take advantage of inaccurately priced stock options, the computation must complete before the next change in the almost continuously changing stock market. As a result, the finance community is always looking for ways to overcome the resulting performance issues that arise when pricing options. This has led to research that applies alternative computing techniques to finance. Most commonly used quantum financial models are quantum continuous model, quantum binomial model, multi-step quantum binomial model etc.

History of finance

[edit]

The origin of finance can be traced to the beginning of state formation and trade during the Bronze Age. The earliest historical evidence of finance is dated to around 3000 BCE. Banking originated in West Asia, where temples and palaces were used as safe places for the storage of valuables. Initially, the only valuable that could be deposited was grain, but cattle and precious materials were eventually included. During the same period, the Sumerian city of Uruk in Mesopotamia supported trade by lending as well as the use of interest. In Sumerian, "interest" was mas, which translates to "calf". In Greece and Egypt, the words used for interest, tokos and ms respectively, meant "to give birth". In these cultures, interest indicated a valuable increase, and seemed to consider it from the lender's point of view.[43] The Code of Hammurabi (1792–1750 BCE) included laws governing banking operations. The Babylonians were accustomed to charging interest at the rate of 20 percent per year. By 1200 BCE, cowrie shells were used as a form of money in China.

The use of coins as a means of representing money began in the years between 700 and 500 BCE.[44] Herodotus mentions the use of crude coins in Lydia around 687 BCE and, by 640 BCE, the Lydians had started to use coin money more widely and opened permanent retail shops.[45] Shortly after, cities in Classical Greece, such as Aegina, Athens, and Corinth, started minting their own coins between 595 and 570 BCE. During the Roman Republic, interest was outlawed by the Lex Genucia reforms in 342 BCE, though the provision went largely unenforced. Under Julius Caesar, a ceiling on interest rates of 12% was set, and much later under Justinian it was lowered even further to between 4% and 8%.[46]

The first stock exchange was opened in Antwerp in 1531.[47] Since then, popular exchanges such as the London Stock Exchange (founded in 1773) and the New York Stock Exchange (founded in 1793) were created.[48][49]

See also

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Notes

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  1. ^ The following are definitions of finance as crafted by the authors indicated:
    • Fama and Miller: "The theory of finance is concerned with how individuals and firms allocate resources through time. In particular, it seeks to explain how solutions to the problems faced in allocating resources through time are facilitated by the existence of capital markets (which provide a means for individual economic agents to exchange resources to be available of different points In time) and of firms (which, by their production-investment decisions, provide a means for individuals to transform current resources physically into resources to be available in the future)."
    • Guthmann and Dougall: "Finance is concerned with the raising and administering of funds and with the relationships between private profit-seeking enterprise on the one hand and the groups which supply the funds on the other. These groups, which include investors and speculators – that is, capitalists or property owners – as well as those who advance short-term capital, place their money in the field of commerce and industry and in return expect a stream of income."
    • Drake and Fabozzi: "Finance is the application of economic principles to decision-making that involves the allocation of money under conditions of uncertainty."
    • F.W. Paish: "Finance may be defined as the position of money at the time it is wanted".
    • John J. Hampton: "The term finance can be defined as the management of the flows of money through an organisation, whether it will be a corporation, school, or bank or government agency".
    • Howard and Upton: "Finance may be defined as that administrative area or set of administrative functions in an organisation which relates with the arrangement of each debt and credit so that the organisation may have the means to carry out the objectives as satisfactorily as possible".
    • Pablo Fernandez: "Finance is a profession that requires interdisciplinary training and can help the managers of companies make sound decisions about financing, investment, continuity and other issues that affect the inflows and outflows of money, and the risk of the company. It also helps people and institutions invest and plan money-related issues wisely."
  2. ^ The discipline of financial economics bridges the two fields.
  3. ^ The first academic journal, The Journal of Finance, began publication in 1946.
  4. ^ Finance thus allows production and consumption in society to operate independently from each other. Without the use of financial allocation, production would have to happen at the same time and space as consumption. Through finance, distances in timespace between production and consumption are then posible.[5]

References

[edit]
  1. ^ Hayes, Adam. "Finance". Investopedia. Archived from the original on 2020-12-19. Retrieved 2022-08-03.
  2. ^ Gippel, Jennifer K (2012-11-07). "A revolution in finance?". Australian Journal of Management. 38 (1): 125–146. doi:10.1177/0312896212461034. ISSN 0312-8962. S2CID 154759424.
  3. ^ "Finance" Archived 2023-01-31 at the Wayback Machine, UCAS Subject Guide.
  4. ^ Anthony P. Carnevale, Ban Cheah, Andrew R. Hanson (2015). "The Economic Value of College Majors" Archived 2022-11-08 at the Wayback Machine. Georgetown University.
  5. ^ Allen, Michael; Price, John (2000). "Monetized time-space: derivatives – money's 'new imaginary'?". Economy and Society. 29 (2): 264–284. doi:10.1080/030851400360497. S2CID 145739812. Archived from the original on 20 March 2022. Retrieved 3 June 2022.
  6. ^ See e.g., Bank of Finland. "Financial system". Archived from the original on 2020-06-02. Retrieved 2020-05-18.
  7. ^ "Introducing the Financial System | Boundless Economics". courses.lumenlearning.com. Archived from the original on 2020-07-28. Retrieved 2020-05-18.
  8. ^ "What is the financial system?". Economy. Archived from the original on 2020-07-31. Retrieved 2020-05-18.
  9. ^ Publishing, Speedy (2015-05-25). Finance (Speedy Study Guides). Speedy Publishing LLC. ISBN 978-1-68185-667-4.
  10. ^ Snowdon, Michael, ed. (2019), "Financial Planning Standards Board", Financial Planning Competency Handbook, John Wiley & Sons, Ltd, pp. 709–735, doi:10.1002/9781119642497.ch80, ISBN 9781119642497, S2CID 242623141
  11. ^ Kenton, Will. "Personal Finance". Investopedia. Archived from the original on 2000-08-18. Retrieved 2020-01-20.
  12. ^ a b c d e f Pamela Drake and Frank Fabozzi (2009). What Is Finance? Archived 2023-02-23 at the Wayback Machine
  13. ^ See Aswath Damodaran, Corporate Finance: First Principles Archived 2016-10-17 at the Wayback Machine
  14. ^ Irons, Robert (July 2019). The Fundamental Principles of Finance. Google Books: Routledge. ISBN 9781000024357. Archived from the original on 11 November 2021. Retrieved 3 April 2021.
  15. ^ Doss, Daniel; Sumrall, William; Jones, Don (2012). Strategic Finance for Criminal Justice Organizations (1st ed.). Boca Raton, Florida: CRC Press. p. 23. ISBN 978-1439892237.
  16. ^ Doss, Daniel; Sumrall, William; Jones, Don (2012). Strategic Finance for Criminal Justice Organizations (1st ed.). Boca Raton, Florida: CRC Press. pp. 53–54. ISBN 978-1439892237.
  17. ^ Kioko, Sharon; Marlowe, Justin (2016). Financial Strategy for Public Managers. Rebus Foundation. ISBN 978-1-927472-59-0. Archived from the original on 2022-06-15. Retrieved 2022-07-05.
  18. ^ Board of Governors of Federal Reserve System of the United States. Mission of the Federal Reserve System. Federalreserve.gov Accessed: 2010-01-16. (Archived by WebCite at Archived 2010-01-14 at the Wayback Machine)
  19. ^ Han, Yufeng; Liu, Yang; Zhou, Guofu; Zhu, Yingzi (2021-05-21). "Technical Analysis in the Stock Market: A Review". SSRN Papers. Rochester, NY. doi:10.2139/ssrn.3850494. S2CID 235195430. SSRN 3850494.
  20. ^ Peter F. Christoffersen (22 November 2011). Elements of Financial Risk Management. Academic Press. ISBN 978-0-12-374448-7.
  21. ^ Allan M. Malz (13 September 2011). Financial Risk Management: Models, History, and Institutions. John Wiley & Sons. ISBN 978-1-118-02291-7.
  22. ^ John Hampton (2011). The AMA Handbook of Financial Risk Management. American Management Association. ISBN 978-0814417447
  23. ^ a b See generally, Roy E. DeMeo (N.D.) Quantitative Risk Management: VaR and Others Archived 2021-11-12 at the Wayback Machine
  24. ^ Thomas M. Grondin (2001). “Risk Management Practices in the Insurance Industry”. Society of Actuaries
  25. ^ See discussion here: "Careers in Applied Mathematics" (PDF). Society for Industrial and Applied Mathematics. Archived (PDF) from the original on 2019-03-05.
  26. ^ a b c See the discussion re finance theory by Fama and Miller under § Notes.
  27. ^ "Finance" Archived 2019-12-22 at the Wayback Machine Farlex Financial Dictionary. 2012
  28. ^ "Finance". Investopedia. May 23, 2023. Retrieved July 1, 2023.
  29. ^ A. Pinkasovitch (2021). Using Decision Trees in Finance Archived 2021-12-10 at the Wayback Machine
  30. ^ What is managerial finance?, Corporate Finance Institute
  31. ^ W. Kenton (2021). "Harry Markowitz" Archived 2021-11-26 at the Wayback Machine, investopedia.com
  32. ^ a b For an overview, see "Financial Economics" Archived 2004-06-04 at the Wayback Machine, William F. Sharpe (Stanford University manuscript)
  33. ^ "The History of the Black-Scholes Formula" Archived 2021-11-26 at the Wayback Machine, priceonomics.com
  34. ^ a b Research Area: Financial Mathematics and Engineering Archived 2022-05-16 at the Wayback Machine, Society for Industrial and Applied Mathematics
  35. ^ For a survey, see "Financial Models" Archived 2021-11-13 at the Wayback Machine, from Michael Mastro (2013). Financial Derivative and Energy Market Valuation, John Wiley & Sons. ISBN 978-1118487716.
  36. ^ See for example III.A.3, in Carol Alexander, ed. (January 2005). The Professional Risk Managers' Handbook. PRMIA Publications. ISBN 978-0976609704
  37. ^ Bloomfield, Robert and Anderson, Alyssa. "Experimental finance" Archived 2016-03-04 at the Wayback Machine. In Baker, H. Kent, and Nofsinger, John R., eds. Behavioral finance: investors, corporations, and markets. Vol. 6. John Wiley & Sons, 2010. pp. 113-131. ISBN 978-0470499115
  38. ^ Glaser, Markus and Weber, Martin and Noeth, Markus. (2004). "Behavioral Finance" Archived 2023-02-09 at the Wayback Machine, pp. 527–546 in Handbook of Judgment and Decision Making, Blackwell Publishers ISBN 978-1-405-10746-4
  39. ^ Zahera, Syed Aliya; Bansal, Rohit (2018-05-08). "Do investors exhibit behavioral biases in investment decision making? A systematic review". Qualitative Research in Financial Markets. 10 (2): 210–251. doi:10.1108/QRFM-04-2017-0028. ISSN 1755-4179. Archived from the original on 2022-04-08. Retrieved 2022-04-08.
  40. ^ Shefrin, Hersh (2002). Beyond greed and fear: Understanding behavioral finance and the psychology of investing. New York: Oxford University Press. p. ix. ISBN 978-0195304213. Retrieved 8 May 2017. growth of behavioral finance.
  41. ^ Focardi, Sergio; Fabozzi, Frank J.; Mazza, Davide (2020-08-31). "Quantum Option Pricing and Quantum Finance". The Journal of Derivatives. 28 (1): 79–98. doi:10.3905/jod.2020.1.111. ISSN 1074-1240.
  42. ^ Ristic, Kristijan (2–3 December 2021). "New Financial Future: Digital Finance As a key Aspect of Financial Innovation". 75th International Scientific Conference on Economic and Social Development: 283–288. ProQuest 2616890742 – via Proquest.
  43. ^ Fergusson, Nial. The Ascent of Money. United States: Penguin Books.
  44. ^ "babylon-coins.com". babylon-coins.com. Archived from the original on 2021-06-15. Retrieved 2021-05-13.
  45. ^ "Herodotus on Lydia". World History Encyclopedia. Archived from the original on 2021-05-13. Retrieved 2021-05-13.
  46. ^ "History of Usury Prohibition – IslamiCity". islamicity.org. Archived from the original on 2023-04-09. Retrieved 2023-04-09.
  47. ^ "Handelsbeurs" [Trade fair]. Visit Antwerp (in Dutch). Retrieved 2 September 2022. The 'Nieuwe Beurs' was built in 1531 because the 'Old Beurs' in Hofstraat had become too small. It was the first stock exchange ever built specifically for that purpose and later became the example for all stock exchange buildings in the world.
  48. ^ "Our History". London Stock Exchange. Archived from the original on 2 September 2022. Retrieved 2 September 2022.
  49. ^ "Research Guides: Wall Street and the Stock Exchanges: Historical Resources: Stock Exchanges". Library of Congress. Archived from the original on 4 August 2022. Retrieved 2 September 2022.

Further reading

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