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According to Arora (2010), accounting could be considered as a sub-function of finance as it generates information or data related to the activities of an organization. Once it is related to finance, there are many issues to deal with, including risk and return, which are very common components in financial management. This assessment will analyze the question what is the point of learning about risk and return for an accountant, and how the related theories are being applied in real life. Using several concepts and facts from different sources, the essay is expected to partly illustrate the relationship between accounting and risk-return management.
The first reason why an accountant must know about risk and return is for short-term investing. According to Kinmel, Weygandt and Kieso (2009), short-term investments are securities held by an organization, and they are readily marketable. Also, they are intended to be converted to cash within the next year or operating cycle. One of the common missions for an accountant is to invest in a range of financial instruments (Bradley, 2017). Almost every business organization has short term goals, such as investing in a security, buying or repairing certain assets. For all of those short-term goals, suitable investment must be considered because it could provide relatively less return while having little or no risk associated. A good accountant should know how to deal with the short-term investment in the most effective way, to maximize the efficiency and the possible profit for the organization.
Two other reasons of knowing about risk and return for an accountant are making report and internal controlling. According to Hancock and Beasley (2015), a very important mission for an accountant is to assemble financial statement data in order to identify record and report the most important financial information for a specific period of time. By focusing on what happened and the past data, accountants have the responsibility to react to the risks and come up with the data in the report. Also, an accountant need to evaluate the effectiveness of internal controls and whether or not any disadvantage could cause the potential of a material misstatement in the financial statement. In order to do all of the tasks above, an account needs to master the knowledge about risk and return management to come up with the most reasonable data.
Becoming a strategic advisor could also be considered as one of the motivation for an accountant to study about risk and return management. Hancock and Beasley (2015) state that accountants own unique understandings of an organization’s financial position, such as information about assets, liabilities or capital. Therefore, they could get involve in forming the long term strategic goals for the growth of the organization. Having deep understanding about the risk and return for business could help accountants better analyzing the conditions which their companies...