Financial Accounting, as it is commonly described, focuses on organizing the financial information of an entity into financial statements to help the decision making of people outside the organization, such as stockholders or suppliers, among others. Its objective is to historically record the economic life of an entity so that its operational development can be analyzed and interpreted by third parties. This is the international accepted definition of Financial Accounting, but one thing is its definition, and another very different one how it is applied to different economic environments.
In some countries with non-stable economies, such as the majority of Latin countries, Financial Accounting becomes essential for a company’s survival and is the most important aspect of business decisions. In the country of Colombia, for example, business decisions (supplying, investing, borrowing, lending) are made after analyzing the financial statements of the companies involved. In a country where assets are guarded thoroughly, organizations take extreme precautions before making any decisions that will affect those assets in any way.
Financial Statements become the most important source of information about companies involved in a business deal. Since they are of public use by law, they’re the first documents requested in any type of negotiation. To become a new supplier for another entity, for example, a company would have to present documents such as bank and clients or suppliers recommendation letters, but the most essential ones would be the Balance Sheet and the Income Statement of the fiscal year immediately prior to the date. Without these two documents, the entity would not be accepted as a supplier, even if the recommendation letters show it to be a very profitable and stable organization.
The main reason for financial statements to be so valued in the business environments of these types of economy countries is because they provide a very trustworthy source of information about an entity’s financial performance. It may not be a very different reason for why they are valued in every other economy, but especially in these ones, where investing has so many risks, and where procedures may take double the time of an average international company, resulting in time expenses, it helps make decisions easier.
Having the financial statements ready in time is also a priority of every President or General Manager of a company. Even though they’re not the ones directly involved in the process of elaborating these documents, they have a close supervision of the task. They’re responsible for making sure the Accounting Department is doing its work correctly and with the honesty and ethics required to be able to present accurate and true financial information. In Colombia, Financial Statements need to be signed by the Legal Representative of the company, who in the majority of the cases is the same General Manager or President or CEO; by the Statutory Auditor (or Company Auditor), and by the Comptroller. By signing them, they are confirming that the financial information recorded in the Balance Sheet and in the Income Statement, as well as the explanatory notes, is true and real and hasn’t been tampered with in any way.
Being a country where corruption sometimes messes up the flow of businesses, having the assurance that the financial information of a company is backed up by these three significant signatures, makes it easier to be able to trust an organization when business decisions need to be made. It also helps the company maintain its place in the industry and be recognized as profitable and stable.
Since Financial Statements play such an important role in the decision making of every type of organization, almost every administrative employee understands the basics of financial accounting, and know how to interpret a Balance Sheet. Even if they may not understand what every account means, they are instructed in what a good and acceptable Balance Sheet should look like and the importance of its information, related to their line of work. They also know how an Income Statement and its content is very important when preparing future budgets.
Even though the general importance of Financial Accounting is the same in every country, it plays a very significant and primordial role in Latin economic environments. That is why serious measures are taken to make sure that Financial Statements are done in the most ethical and transparent way, allowing Financial Accounting in non stable economies, to continue being a source of reliability and trust in the process of business decision making.
By: Monica Alvarez-Fuentes
Posts Tagged ‘Country Of Colombia’
The Importance Of Financial Accounting In A Latin Country Environment
December 17th, 2009Deep Inside Colombia – Crossing The Andes With A Surfboard
November 18th, 2009
I’ll never forget the look on the face of that Colombian campesino man. My wife just explained to him in Spanish that what I am holding under my arm is indeed a surfboard, despite the fact that we were standing in a Colombian village that was located somewhere in the middle of the Andes Mountains, hundreds of miles away from any ocean. After hearing this news the man made a joke about us getting bad directions. He then flashed a smile that revealed a mouth full of rotten teeth. Soon after that he shook his head, tucked his hands into the front pockets of his hand-woven Inca style poncho, turned, and moved on down the only street in his town. When the man reached the center of town a gust of wind swept down the street and blew the black fedora hat off his head. As I was watching him chase after it through a cloud of dust, I thought to myself; “I gotta’ get to the ocean.”
I was beginning to feel like a fish out of water. Surfers cannot stay away from the ocean for too long, or they start to “dry out”. As I was standing on that dirt street in that dusty little town, I realized that I had not seen the ocean in over a month. More importantly, I had not surfed in it. Halfway through a two month excursion across the country of Colombia, in South America, we were on our way to a small Caribbean beach resort on the northeastern edge of the country for a much needed break from the madness we had experienced so far on that trip. We had spent the holidays traveling from Bogotá to Medellín, and then back to Bogotá again to meet and visit with various different members of my wife’s family. There had been some mishaps along the way involving pick-pockets and miscreants. Up to that point it was not fun, and we will leave it at that.
Traveling on a tight budget in a foreign country is the best way to experience the true culture of that country, but it can be quite taxing on your soul. We could not afford plane tickets to fly all over the country, so we had to take busses and taxis instead. Some of those bus rides took over two days to reach our destination. We traveled through some of the most remote areas of Colombia, changing busses and hailing taxis the whole way. Along the way we saw some of the most beautiful scenery on earth, and experienced some very interesting, intense, and strange things. Black magic and evil curses are practiced in many areas of Colombia, and I cannot say any more on that subject, for fear that you would think of me as crazy. There are things that cannot be explained in this world, and a lot of them happen in Colombia.
There were other things that happened to us that were even more terrifying than black magic. Let’s just say it’s never a good thing to have your bus stopped in the middle of the night by rough looking men with machine guns on a winding, dark, mountainous road. That is whole other story for another time.
Back to our main story; we were about four hours North of Bucaramanga, and waiting to board yet another one of those colorful busses. All I could think about at that moment was surfing and relaxing at this place called Tayrona. I was told you can sit in your own thatched-hut “choza” and watch the waves from your front porch. For those who are not familiar with the sport of surfing, that sounds about as good as it gets for a surfer.
It had not been easy carrying that surfboard all over Colombia. We landed in Bogotá in the middle of the country a month before, and I had been schlepping it around with our other luggage from one bus or taxi to the other ever since. It was like I was living my own little version of the movie
Fitzcaraldo, and my surfboard was the ship that was being carried for many miles across dry land. I was determined to make the effort pay off.
While we were waiting for our bus in that little mountain village we were inundated by the usual local people trying to sell us stuff. My wife, being a Colombian native did most of the talking for those negotiations. These little villages along the main roads of Colombia survive on money from people who are just passing through, or waiting for a bus. The local indigenous people sell everything from bags of purified water, to homemade “empanadas” (a meat and potato filled turnover made with corn-meal dough). My wife and I had been surviving on food and water provided by those people for most of our trip. Amazingly, neither of us had been sick yet. Albeit, most of this food had been delicious, you have to wonder about the cooking and cleaning practices in a town that has no running water. Something tells me that if the cook had a choice between using their last bucket of water to wash their hands before cooking, or having water to drink the next day, they’d forego the cleanliness. I tried not to think about stuff like that on that trip. I only thought about how much flavor those homemade items had with their homegrown ingredients.
People sure know how to cook in Colombia. Wow! The food in that country just seemed to have a lot more flavor than the food I was used to in the United States. We really experienced the authentic food of Colombia; “buñuelos, “pandebonos”, “arepas”, you name it and we tried it along
the way. We were on a budget, yet eating very good food. The people who made this food were as poor as one could be, but they could make food like no-one else on earth. The freshness, lack of pesticides, and the nutrient-rich soils also have a lot to do with why the food tastes so good in Colombia.
After we ate our share of “empanadas” that we purchased from a little old village woman carrying a hand-woven basket, we were ready for a freshly blended fruit smoothie. There were always several of these little smoothie stands in every town that we stopped at along the way, and we always made sure that we sampled at least one. No matter how small of a stand, the vender always had electricity to run their blender, ice box, and boom-box. I immediately ordered a couple of “tomate de árbol “smoothies at a nearby stand, and then we sat down on an old wooden bench provided by the smoothie vendor.
We were told by the driver of the last bus that our next bus should be along in “no time at all”. It had been my experience up to that point that this bus driver may, or may not be right. Sometimes the bus came right away and the transfer went smoothly. Other times we ended up waiting long periods of time between transfers. Those ones did not go so smoothly.
The mountain roads and leftist guerilla laden areas that these busses travel through can cause long delays, to say the least. Hanging out in that small town in the middle of nowhere in the foothills of the Andes Mountains waiting for a bus was quite nerve-racking. The local people of those types of towns were always very suspicious of anyone that stayed behind after a bus came through. Most people just passed right through. They were especially suspicious of a Gringo with a surfboard and a Colombian wife. There was a war going on in that country. Everywhere we went everyone wanted to know whose side we were on. As we were sitting in that dusty, one-horse town in a remote area of Colombia, I knew we were in for a long, harrowing wait.
By: Michael Connelly