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8 Accounting Myths You Probably Believe

Created by Teo Yu Sheng 8 Accounting Myths You Probably Believe Accounting is perhaps best known for two things - its supposed boring nature, and its abundance of scandals (think Enron). Combine these with more than 500 years of existence, and you're bound to end up with a few deceptively believable myths. This infographic takes apart 8 of the most common ones - some of which even accountants themselves are guilty of believing! Let's get started! ΜΥΤΗ 1 Arthur Andersen no longer exists. R. I.P. A. Andersen Born: 1913 Died: Er, not yet Arthur Andersen is still around today. But it's not exactly alive and kicking; it lost most of its business and 99.7% of its employees. To top it off, its office is now mostly used to host Accenture's training sessions. Speaking of which, Accenture, the world's largest consulting firm by revenue, was Arthur Andersen (up till 2000, just over a year before the Enron scandal unfolded). Sources: http://en.wikipedia.org/wiki/Arthur_Andersen http://www.ehow.com/facts_5184614_history-arthur-andersen-accounting-firm.html MYTH 2 Arthur Andersen is guilty of obstruction of justice for its involvement in the Enron scandal. Hold on a sec. It was found guilty in June 2002. In May 2005, however, after numerous appeals, the U.S. Supreme court overturned this ruling. The court held that the instructions given to the jury didn't properly portray the law that Arthur Andersen was charged with breaking. Although this new ruling cleared its name, Andersen's reputation was still too toxic for the recovery of its business operations. And so it died. Kind of. Source: http://en.wikipedia.org/wiki/Arthur Andersen_ LLP v. United_States MYTH 3 Auditors check through all documents in audits. CHere's every single damned document (even the ones you didn't ask for). Auditors only perform checks on samples of documents (or items). Generally, the larger the risk of misstatements, the larger the sample size of audit checks. Source: http://en.wikipedia.org/wiki/Sampling_risk MYTH 4 Auditors detect fraud. Nope - not actively, at least. Think of a normal audit as the act of policemen patrolling an area to keep it safe. Fraud detection would then be the act of a SWAT team busting into a drug den with the intention of finding illegal drugs. They're kinda different - both in terms of intention, and intensity. Source: http://www.sequenceinc.com/fraudfiles/2013/06/escaping-detection-why-auditors-do-not-find-fraud/ MYTH 5 Auditors audit annual reports. Cover & Contents Page The Best Numbers We Could Find Letter of Optimism UniCorporation Annual Report 2015 Graphics and Nice Stuff Financial Statements (Audited) Notes to Accounts (Audited) Auditor's Report Summary of Financial Data Corporate Information Auditors audit the financial statements and notes to accounts, and produce an Auditor's Report. These are parts of an annual report. The cover page, table of contents, financial highlights, letter to shareholders, and all the other pretty-looking stuff are not audited. But if anything presented in these parts contradict with the audited financial statements, auditors can make the company withdraw and correct their annual reports. Source: http://www.investopedia.com/terms/a/annualreport.asp MYTH 6 Accountants need to be good at maths. + >L lim a(cos (2²-x) {3) ) x→0 Let profits =x Accountants don't exactly perform partial integrations or advanced differentiations. +, -, X, and ÷ are about as complex as it gets. Besides, calculators and Excel exist for a reason. Source: Common sense. MYTH 7 "Debit" and "credit" actually carry inherent meanings. Dictionary Debit |debit| noun Nothing inherently meaningful. Aa Credit krɛdrt| noun Nope, nothing here either. Today, "debit" means little more than "to add to the left column", and "credit", "to add to the right column". But to be fair, these words do have historical meanings. "Debit" comes from the Latin word debere (meaning to owe), and "credit" from credere (meaning to entrust). These explain how, from a bank's point of view, monies entrusted with them are credited as liabilities, and monies owed to them are debited as assets. In most business transactions, however, this narrow definition simply makes no sense: a company's inventories are debited, but no one owes it anything; revenues are credited although nothing is entrusted with the company. Truth is, “debit" and “credit" are merely necessary mechanisms that keep accounting transactions balanced. Sources: http://en.wikipedia.org/wiki/Debits_and_credits And my agonising attempt at understanding the double entry accounting system. MYTH 8 Double-entry accounting was invented in 1494 by Luca Pacioli, a.k.a. the "Father of Accounting". Iinvented the - Stahp. Double-entry accounting was already in use nearly 150 years before Luca Pacioli was born. One of the earliest surviving record of double-entry accounting dates back to 1299, and one of the earliest known record of a complete double-entry system dates back to 1340. Benedetto Cotrugli from Ragusan (modern day Croatia) wrote the first known manual on the double-entry accounting system in his 1458 treatise, “On Trade and the Perfect Dealer" (albeit only a short chapter). Finally, Luca Pacioli published his book Everything about Arithmetic, Geometry and Proportion, which extensively covered the topic of double-entry accounting systems, in 1494. That's 36 years after Cotrugli's treatise, and over a century after the earliest records of double-entry accounting. Sources: http://en.wikipedia.org/wiki/Double-entry_bookkeeping_system http://en.wikipedia.org/wiki/Benedetto_Cotrugli http://en.wikipedia.org/wiki/Della_mercatura_e_del_mercante_perfetto http://www.canhamrogers.com/HDEB.htm http://en.wikipedia.org/wiki/Luca_Pacioli ABOUT TEO YU SHENG Yu Sheng is a graphic designer based in Singapore, who has a knack for producing infographics. He also writes, sketches, and sometimes paint things. He happens to be an accounting and finance student. yusheng.teo@gmail.com lyusheng.teo @yushengteo Bē lyushengteo м l@yusheng.teo 8 Accounting Myths You Probably Believe

8 Accounting Myths You Probably Believe

shared by yusheng.teo on Jan 13
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There are plenty of lists across the internet about accounting myths, but most of them concern themselves with addressing stereotypes regarding accountants — things like “accountants are borin...

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