leaf

Why do we say to be a good "financial" person instead of a good accountant? Because it carries the meaning of restoring the reputation of finance. What is accounting? According to ancient definitions, it is: monthly calculations are "accounts," and annual calculations are "meetings," and together they form "accounting." So, from a literal perspective, ancient accounting was about calculation and statistics; what to do with the statistics was not the accountant's concern, but rather that of the higher-ups. Later, we added functions to accounting, which can be simply described as calculation and supervision—calculation became a means, and supervision became a goal, indicating that the role of accounting has shifted from simple record-keeping to management. Subsequently, the concept of "management accounting" was introduced. The emergence of management accounting stems from the internal management needs of enterprises, emphasizing the integration of business and finance, requiring accountants to transition from financial management to value creation.

In 2014, the Ministry of Finance issued the "Guiding Opinions on Comprehensively Promoting the Construction of Management Accounting Systems," followed by a series of policy interpretations that provided specific guidance for the comprehensive promotion of management accounting systems. All of this sounds very encouraging, but in practice, the application in enterprises faces numerous difficulties. There are many constraining factors, but I personally feel that the lack of change in mindset is a significant reason. Many financial personnel initially position themselves as record-keepers and calculators, at most adding a bit of supervision. Some people have worked in accounting positions for over ten years without understanding their company's business characteristics, let alone promoting the integration of business and finance. In this situation, in the eyes of outsiders, the role of financial personnel becomes even narrower; they see the main tasks of accountants as bookkeeping and payments, with no relation to management.

Of course, changing mindsets takes time, and we can only start from ourselves, step by step. I suggest that the first step is to restore the reputation of financial personnel, shedding the label of accountant and telling the public that we are financial personnel and also managers—managing a company's people, finances, and assets; aside from "people," we cannot manage (in fact, performance management and compensation management in human resources require cooperation from financial management), both finances and assets are related to our work functions. Only by accurately positioning ourselves can our work be carried out smoothly.

What constitutes a good financial person?#

"How can a certified public accountant create high income through their professional skills?" There are many opinions, and they all have their merits; those interested can look it up. But to summarize, this question has already answered several necessary conditions for being a good financial person:

1. You must have qualified professional skills and possess one or more professional qualifications. For example, being a certified public accountant who has passed professional qualification exams through personal effort;

2. You must be engaged in financial work. This may seem like a cliché, but it is not. There are many highly qualified (such as senior accountants), high-ranking (such as chief accountants), and high-income individuals in the world, but these people are not actually doing financial work, and their career paths may not be the same as those of traditional financial workers, making it difficult for most people to replicate. Therefore, good financial personnel in this book do not include such individuals. There are also those who work as cashiers but are essentially fund custodians, often doing more manual work than thinking; if they do not change positions, their promotion space will be limited over time;

3. You should have a relatively high income. What counts as high? It depends on comparisons: among peers, you should be above average; in the same city, you should also be above average. In short, you should be slightly above the average—do not underestimate this point; for this, you need to put in much more effort than others. Those in finance know that we study and take exams more than in other professions, starting from the accounting qualification certificate, assistant accountant, intermediate accountant, senior accountant, which are all professional titles; there are also qualification types, such as local certified public accountants and internationally recognized ones (ACCA). Just having accounting qualifications is not enough; there are also registered tax agents, registered appraisers, and even registered land valuers, registered cost engineers, etc., truly an endless array of certifications! Passing these exams is not the end; there is also continuing education every year—this is abstract, but the reality is that standards are constantly changing; if you do not study for a few years, you will forget most of your professional knowledge. Therefore, to be a qualified financial person or even an excellent financial elite, the road ahead is still long and difficult.

Next, let’s discuss what preparations are needed to be a good financial person.

1. Love your profession; we must genuinely fall in love with financial work.

This may sound cliché, but the fact is that many financial workers enter the field passively, perhaps because they did not choose the right major in college, or due to insufficient scores, or because they listened to their parents: finance has a broad job market, and every organization needs it, which can be considered a skill. In short, they entered the field in a muddled way, only to find that the work is monotonous and tedious, the salary is not high, and the promotion space is limited, quickly losing interest in their work. Some ambitious individuals think about changing careers, but more people just drift along day by day.

In fact, in any situation, if you limit yourself to one aspect, you can only see its shortcomings. But from another perspective, we are in the best era for financial personnel. In the 1980s, our predecessors were still struggling with fundamental questions like "Is accounting an important part of enterprise management?" Today, we no longer need to debate this; at least theoretically, we don’t. Throughout the 1990s, the overwhelming impression of accountants was still: wearing oversized sleeves and thick glasses; seemingly always sitting by the window calculating accounts, bookkeeping, and closing accounts; with handwritten documents piled up on the desk, even a sneeze had to be careful, fearing to blow the documents away. In today’s era of information technology, the accounting work that used to occupy 70-80% of our workload has been completed by computers. Financial personnel are now fully capable of freeing themselves from heavy calculation work to study business and delve into management decision-making.

There is still much for us to learn; we need to master knowledge in the field of finance and accounting while also dabbling in other areas, such as value management, strategic management, corporate governance, information technology, marketing management, investment and financing, corporate law, international business, negotiation skills, asset management, and so on. The world before us is so broad and rich; why not fall in love with both specialized and broad financial work?

2. Do not be a small accountant; aim to be a big financial person.

It was the late 1990s when I just graduated and started working in a small shopping mall. The mall was not large, but there were many accountants; more than half of the finance department was busy keeping detailed accounts of products (now this part of the work has been replaced by ERP systems), and they were extremely busy every day. I was young then and spoke without thinking (well, I still do), and after just a few days, I suggested finding a stock management software from the market so that all documents could just be entered without needing to be recorded. Although it was just a simple suggestion without a specific plan, I could clearly feel that the accountants around me were a bit nervous. Later, I learned that someone went back and bought books related to computers, wanting to learn some basic operational knowledge. But everyone understood that this was of no use! Once the system was up and running, it was inevitable that fewer accountants would be needed. However, at that time, not many people understood what information technology could bring; the system implementation ultimately fell through. Not long after, I left as well—many people probably breathed a sigh of relief. However, the progress of the times cannot be resisted; many years later, I heard that the product account accountants from back then had all left and never returned to this field.

Times change, and people must change. Many times, we need to step ahead of the times, or at least keep pace with them; those who cannot keep up may ultimately be eliminated.

As financial personnel, to keep up with the situation, we must first recognize the situation. In the past, we were often referred to as "certain accountants" because our main work was calculation; accounting was about quick calculations. Now we refer to ourselves as doing financial work, meaning we are responsible for a company's money and assets, which reflects a "management" function. After all, where there are people, there are organizations, and where there are organizations, there is a need for management; those with management capabilities are always the most sought after! Therefore, we must follow the demands of the times and not learn skills that have already been eliminated by the times, such as the abacus. If we are to learn, we should learn knowledge related to management and internal control.

If you are still doing some simple calculation work, you must be very careful; always remind yourself to turn passivity into initiative and think and analyze problems from the perspective of a manager. Do not be a small accountant; if you are going to do it, do financial work that cannot be easily replaced.

3. Strengthen business learning and improve the knowledge system.

In my view, modern financial personnel should reflect their value in the following three aspects:

(1) Build an internal control system and improve financial-related systems. The most basic need for bosses when hiring finance personnel is to manage their money and assets well. The problem is that it is fine when the company is small; you can just find a boss's wife to handle it; but if the company is large, finding relatives will not help. What is internal control? Its core is self-restraint and self-control, spending as little money as possible to achieve established management goals. It is easier said than done; if you can really do it, you will be the most beloved relative of the bosses!

(2) Strong analytical and judgment capabilities. The analysis and judgment here mainly refer to business risk control. Whether we admit it or not, the reality is that no matter how well a company is managed internally, if it does not make money, it is all in vain; therefore, for the company, business is always more important than finance, and finance ultimately serves the business. Therefore, modern financial personnel, even if they are not experts, must understand and study the business, be able to control operational risks from a financial perspective, and provide necessary support. This is also an easy-to-know but difficult-to-do task; as the company develops, new businesses and new plans will constantly emerge, and there is no absolutely perfect system; managers must face new problems and challenges at all times and cannot slack off for a moment!

(3) Coordination and communication skills, both internally and externally. This should be a basic skill for a qualified manager. No matter how well you think in your mind, it is useless if you do not express it, and when expressing, you must make sure the audience understands and grasps your intentions. I have seen many financial personnel who work diligently and seriously, with high business levels, but they cannot get promoted mainly due to insufficient communication skills. Financial personnel often complain that bosses do not value finance, but bosses are not professionals and cannot be proficient in every position. At this time, we need to take the initiative to communicate frequently with the bosses, letting them understand how much value financial work can bring to the company. External coordination work is the same; banks, industry and commerce, taxation, and finance are all units that finance personnel often deal with, and establishing good relationships with them usually yields great rewards at critical moments.

How does a good financial person grow?#

I will not talk about theory or concepts here (if you forget financial common sense, please search it yourself), but based on work experience combined with some theoretical foundations, I will share my personal views, focusing on key points, hoping to be of help to you.

Basic Part

1. Accounting Entity

The accounting entity is essentially a calculation entity; its biggest difference from a legal entity is its strong subjectivity, different objects, and different needs, which can be large or small and can be arranged and combined freely. The reason for placing the accounting entity first is that it is the foundation of foundations; calculation, analysis, and management all revolve around the entity, and many financial management behaviors require this concept. To understand this concept, we must first realize that the accounting entity does not necessarily have to keep accounts. For example, if you are asked to conduct a financial analysis for a diversified group company, you must first categorize the diversified businesses of the group; the commercial trade industry is one category, the manufacturing industry is another, and the service industry is yet another. Different business types need to be rearranged to see how much revenue, profit, and resources each industry occupies, etc. Once these numbers are listed, a new accounting entity is formed. Similarly, the preparation of consolidated financial statements also creates a large accounting entity; due to the existence of external mergers and acquisitions, the asset values of consolidated financial statements differ from the book values of the original legal entities, which requires us to have a revaluation and recalculation process when preparing consolidated financial statements. Understanding the principles of accounting entities makes many things that were previously difficult to understand become clear when preparing consolidated financial statements.

2. Going Concern

In life, we often see some stores clearing out their inventory when their leases expire, selling goods at much lower prices (if it is indeed a clearance sale). In finance, we would say that this store can no longer continue operating and is in the liquidation phase, which will greatly affect accounting treatment. For companies that are not going concerns, many accounting methods we commonly use will not apply; for example, accounting estimates do not need to be estimated, and bad debt provisions do not need to be accrued; whatever can be recovered is what it is; accumulated depreciation is no longer calculated, and disposal is done at net value. Whether or not a company is a going concern will greatly influence our current asset valuation methods.

3. Assets

There are two important conditions for asset recognition: one is whether it is held by the accounting entity, and the other is whether it can create value. The concepts are clear, but in practical application, we often overlook the second point. This excludes virtual assets such as prepaid expenses, long-term prepaid expenses, and pending property losses from the balance sheet, as they do not have actual value. In the past, when financial personnel adjusted profits, these three accounts were often used; if there were losses, they would be recorded! Recorded where? Recorded as pending! Now, this practice is no longer allowed by standards, but it still exists, just in a transformed way; prepaid expenses and long-term prepaid expenses have turned into other receivables or other current assets, and pending property losses are no longer allowed, so they are simply not processed.

4. Inventory, Costs, and Expenses

Someone once asked which account in the three main financial statements is the most important. Personally, I believe this is a question without a standard answer because financial statements serve the users, and the identities of the users vary, leading to different purposes and therefore different focuses. Creditors, such as banks, need to consider repayment when lending, so they care about the company's solvency and liquidity, as well as several accounts related to the debt-to-asset ratio; ordinary investors are most concerned about the company's profitability, so they focus on net profit and its growth; professional investors cannot rely solely on a single financial metric; they pay more attention to the company's growth potential and the underlying factors behind the statements. So what do auditors focus on? They should pay attention to everything, but if we talk about where they invest the most attention, it is still these three accounts: inventory, costs, and expenses. Because if a company may have fraudulent behavior, these three accounts are the most likely to be involved. Expenditures can be expensed in the current period or capitalized to increase profits; capitalizing to inventory is not easy to detect. We all know that manufacturing costs should be allocated to the value of finished products, and there is overlap between manufacturing costs and detailed accounts of management and selling expenses, such as utilities, labor costs, travel expenses, office expenses, etc.; these detailed accounts have the same concept but are distinguished by financial personnel based on the users; if they can be separated, they can also be combined and rearranged.

The relationship between inventory and costs is the same. Inventory can also be over-transferred or under-transferred for various reasons, thus affecting the amount of cost of goods sold in the current period. It is easy to discover such issues by paying attention to whether financial processing follows the principle of matching income and expenses; if there is income, there must be corresponding costs to match; similarly, expenses incurred in the current period must also match the income of the current period and cannot be reflected across periods. In practice, auditing methods also involve matching, comparing this period with the previous period, or even comparing year-on-year for several consecutive years, comparing the gross profit margin of this period with that of the previous period, and comparing the detailed expenses of the same type from this period with those from the previous period; if there are large increases or decreases that cannot be explained, there may be problems.

Some may think that income is also a high-risk area for fraud, but I believe that income is relatively easier to confirm; the key points are whether the products have been shipped, whether the services have been provided, and whether the risks have been transferred. If the answer is yes, then it can be confirmed; if the answer is no, then it cannot be confirmed. As for whether invoices have been issued or contracts signed, those are secondary.

5. The Principle of Substance Over Form

The principle of substance over form is a professional term in finance, widely used in financial accounting, but it is also one of the more difficult concepts to grasp in the basics of finance; those who can master it proficiently can be called financial experts. The application of this principle is based on our professional judgment ability in daily work and the degree of accumulation of work experience. For example, we often mention financing leases; the form is a leasing behavior, and the legal contract signed by both parties is also a lease agreement, but in essence, the purpose of the enterprise is to finance, so in accounting treatment, it should be treated as an investment behavior.

I have seen a business with a gross profit margin exceeding 50%, which is obviously inconsistent with market conditions. Upon investigation, it was found that the cost of the main raw materials was not matched and transferred, and the reason given by the relevant accounting personnel was that they had not received the invoice for that batch of raw materials, so they could not record the cost! People often say that working in accounting for a long time can lead to rigid thinking. In practice, veteran accountants may make some formalistic errors while believing they are acting according to the system. The above example violates the matching principle of accounting and, in fact, also violates the principle of substance over form.

Career Part#

1. Career Planning for Financial Personnel

The most concerning issue for newcomers to the workplace is their career prospects, which involves how to plan their careers. Those with plans often set goals from college, and their career planning after employment can be detailed down to each year. In contrast, pessimists may think that accounting is a profession based on connections, and without a background, being able to eat is already good enough; they just want to get through each day without planning for their future.

Everyone's path is different. I am not a life planner, so I cannot offer any good advice; I can only remind you: there is no forever iron rice bowl! In today's era of information technology, every industry is affected to varying degrees, and the impact on financial personnel is direct and brutal! To avoid being eliminated, one must continuously work hard, accumulate knowledge, and gain experience!

(1) Education

This is a stepping stone; having it is always better than not having it! However, education does not equate to work capability; a good education can prove that you are more competitive under the same conditions, but many knowledge and experiences cannot be learned in school. In practice, we find that being able to apply 30% of what we learned in school in work is already quite good.

(2) Qualifications

Note, it is qualifications, not titles. Qualification exams represent that you possess the knowledge and skills required for a certain profession, focusing on whether you have the ability to perform actual business work. Titles, on the other hand, are merely job titles, ratings of that position. Although being a certified public accountant is a qualification certification in the auditing industry, its social recognition is clearly much higher than that of an accountant. Of course, the state is also deepening title reforms; now the assessment of accountants mainly relies on exams, so there is still a certain amount of gold content. Personally, I do not advocate financial personnel obtaining too many certificates. In 2014, the state issued a document canceling the licensing and recognition of 11 professional qualifications, including registered appraisers, which indicates the state's attitude. For financial personnel, having a certified public accountant qualification is sufficient; more energy should be focused on accumulating work experience. The learning of professional knowledge should also center around finance; obtaining too many certificates is not worth the effort.

(3) Company

For your first job, it is better to be selective; try to find a reputable company. If you can find a state-owned enterprise, do not settle for a private enterprise; if you can find a foreign enterprise, do not settle for a domestic private enterprise. It is not that private enterprises are bad, but the general impression is that state-owned enterprises are formal and can provide learning opportunities, making it easier to switch jobs later with a higher starting point. Of course, nothing is absolute; I have also seen graduates from prestigious universities who have worked in large state-owned enterprises for many years and have forgotten most accounting standards, becoming rigid and dogmatic. It can be said that no matter how good the conditions are, if one does not work hard, it is of no use.

(4) Position

Choosing a financial position is very important. If you just entered the job market and have no choice but to take on a grassroots position, you must pay extra attention to accumulating knowledge and strive to leave the bottom position as soon as possible. If it is too difficult, find some miscellaneous tasks to do, striving to leave a good impression on your leaders that you are eager to improve; opportunities are always given to those who are prepared.

2. Analysis and Selection of Financial Positions

(1) Cashier and Chief Financial Officer (CFO)

These are two positions in finance with the biggest gap. One is the lowest-level cash manager, requiring good professional ethics (in reality, cashiers are high-risk positions with a relatively high incidence of problems), but with the lowest technical content and the least upward mobility. The other is the highest level, the ultimate goal of career planning for financial personnel, nominally a financial position, but in reality, a corporate executive requiring good communication and interpersonal skills; often, a CFO cannot be achieved solely through knowledge and education.

(2) Various detailed account accountants

These can be subdivided into accounts receivable accountants, fixed asset accountants, cost accountants, expense accountants, tax accountants, etc., requiring certain professional skills, but the work has fixed processes, and doing it for a long time can become monotonous. Additionally, there is the possibility of being replaced by information technology, so seeking opportunities for upward mobility is the best choice.

(3) Financial Supervisor (also called General Ledger Accountant)

The main functions are to review and supervise, checking the timeliness and accuracy of vouchers and supervising the execution of procedures for deviations. They may also be responsible for preparing and analyzing reports, which involves workload, technical content, and pressure.

(4) Financial Manager

The financial manager is actually the highest level in financial positions (the CFO should be considered a senior management position); at this level, specific accounting work does not need to be personally involved. The main functions are to provide financial analysis reports for executives, prepare budgets, control operational risks, and participate in the overall management of the enterprise, even providing support for strategic decision-making. Of course, managing subordinates is also essential.

With the above simple introduction, the specific choice of positions should be quite clear. That is "sit and look at two," once you are familiar with your position, immediately observe and learn from the next level up, and never be content with the status quo! In fact, financial work is not difficult; much of it is procedural, and there are specific institutional regulations on how to do it. The difficulty lies in how to break through these constraints and enter the levels of communication, analysis, judgment, and decision-making.

3. Should we do fake accounts? That is a question!

The biggest dilemma financial personnel face in the workplace is probably whether to do fake accounts. When we step out of school and start looking for jobs, many companies will ask whether we can do fake accounts during the interview phase. So how should we answer? I believe the real purpose of the company is to see how your experience is and whether you are obedient and can act according to the company's intentions. At this time, we can tell the other party that fake accounts carry risks, and the main risk is to the enterprise because the first responsible person for corporate fraud is always the legal representative. Therefore, the key to doing fake accounts is not whether to do them or not, but how to grasp the risks to maximize the interests of the enterprise; some fake accounts you can do but choose not to because the risks do not justify the benefits.

This question can be answered this way, but when it comes to the job, whether to do it or not remains a reality. My suggestion is to grasp the bottom line; financial accounting probably involves some profit adjustments. In terms of profit adjustments, there are high-level ones called earnings management, medium-level ones called profit planning or tax planning, and low-level ones called fake accounts or tax evasion. The goals are basically the same, but the means differ, and the risks borne are not the same. One is to maximize corporate benefits using standards or policies, while the other is to do whatever it takes for profit, even violating laws and regulations for a not-so-high salary. The risks and returns are not proportional, and it is not worth it! Of course, where the bottom line lies still depends on the specific situation:

(1) Small and medium-sized private enterprises. These enterprises often require fake accounts to pay less tax; personally, I believe the bottom line is not to touch value-added tax, especially tax evasion, which involves criminal offenses—absolutely do not touch!

(2) Public institutions. Many institutions have small funds for convenience in spending, avoiding higher-level supervision; where does the money in these small funds come from? It is actually the administrative income that should be submitted being withheld. In finance, there is a professional term called "sitting on funds," which is not necessarily illegal but is a violation. What is illegal? If the money from the small fund ends up in someone's pocket, that is embezzlement and illegal! Absolutely do not do it!

(3) State-owned enterprises. Among all enterprises, the pressure to do fake accounts in state-owned finance is the least because it is all public money; paying taxes and submitting profits are also public, so there is no need to do fake accounts to evade taxes. But just because the risks are low does not mean there are no risks; the bottom line is that nothing should be done for personal gain; doing it for the public is easier to justify.

I want to emphasize again that I am not teaching you to be bad; I also do not like to sing high praises and let you fight against all unreasonable systems to the end. Protecting yourself, not being greedy, and not doing evil is a bottom line that everyone in any industry must adhere to.

Skills Part

Many people, including financial personnel themselves, say that financial work is not difficult and is easy to learn! In fact, this is a misunderstanding of the concept of financial work. Different financial positions have different financial tasks, and the work of accounting clerks is the simplest. Nowadays, an accounting firm can manage the accounts of hundreds of small companies, and aside from binding, most of the work can be done through computers, which is easy to operate and replaceable, so it is certainly not difficult. However, as a financial manager, there is much to learn. Through the following introduction, you will find that if you want to be a good financial person, there is indeed a lot to learn!

1. Know how to do accounts

I often call on financial personnel to abandon traditional accounting thinking, learn more about management, and become comprehensive talents, but does this mean we should not pay attention to accounting calculations? Can we just trust the ERP system to handle the vouchers and let financial personnel focus solely on financial management? The answer is certainly no! It is like a writer with excellent writing skills who cannot become a master if they make many spelling mistakes. If accounting is the language used to describe a company's economic activities, then various documents, vouchers, and reports are the accounting words. Imagine if financial personnel cannot recognize or fully understand the words, how can they write good articles and produce good reports?

(1) The quality of accounting processing directly affects business decisions.

Recently, a financial supervisor from a magazine publishing company discussed their accounting treatment of sales for bound periodicals with me. It is well-known that periodicals have a strong time sensitivity; unsold magazines become worthless, so magazine publishers usually fully accrue inventory impairment for all unsold magazines at the end of the year based on their inventory cost. From a financial perspective, the book value of the magazine publisher's inventory at the end of the period is zero. The following year, the magazine publisher will scrap the expired magazines, sending them to paper mills for pulping, and the income from this will be treated as other business income.

This year, the magazine publisher, in order to fully utilize the remaining value of the magazines, bound a certain issue from the previous year into a volume and sold it at a discount, achieving sales revenue of 1 million. Now the question is, since these magazines are expired and have no book value as inventory, what should be the cost matched with the sales revenue of this bound volume?

The financial supervisor's Plan A was:

The cost of the corresponding periodical for the previous year was 1.3 million; according to accounting standards, the inventory impairment provision accrued in the previous year must first be reversed, which means debiting: inventory impairment provision 1.3 million; crediting: asset impairment loss 1.3 million. Thus, the book value of the bound periodical becomes 1.3 million, and the matching transfer results in revenue of 1 million, cost of 1.3 million, and a gross profit of -300,000. At the same time, the asset impairment loss for the year decreases by 1.3 million, and total profit increases by 1 million.

Plan B was:

Do not reverse the previously accrued inventory provision but treat it as waste sales, debiting: bank deposits 1 million; crediting: other business income 1 million; with other business expenses being 0. Thus, the asset impairment loss for the current period remains unchanged, and the gross profit increases by 1 million, with total profit still increasing by 1 million.

The impact of both plans on total profit is the same, but the difference lies in the calculation of gross profit. Plan A reduces the gross profit for the current period by 1.3 million, which would be a key indicator for year-end assessments (it seems that this is generally the case for most companies), making this plan unfavorable for management. In contrast, Plan B directly increases the gross profit by 1 million, which seems inconsistent with the facts and is too favorable for management.

I proposed Plan C: According to accounting standards, inventory impairment provisions are accrued based on the difference between the cost of inventory and its net realizable value. Similarly, reversing inventory impairment provisions is also based on the disappearance of the factors that previously reduced the value of inventory (the bound volume has a certain market demand), and the net realizable value needs to be reassessed. Therefore, the net realizable value for this period should be determined, and the inventory impairment provision should be reversed accordingly, and the cost should be matched and transferred accordingly. We all know that the net realizable value is the estimated selling price of the inventory minus the estimated costs to complete it and the estimated selling expenses and related taxes. In this case, the cost and selling expenses related to the bound volume are relatively low; assuming the relevant costs are 200,000 (here we assume the total expenses remain unchanged), the net realizable value would be 800,000. The accounting treatment would be to debit: inventory impairment provision 800,000; credit: asset impairment loss 800,000. The book value of the bound periodical would be 800,000, and the matching transfer would result in revenue of 1 million, cost of 800,000, and gross profit of 200,000. At the same time, the asset impairment loss for the year decreases by 800,000. Total profit increases by 1 million remains unchanged.

Plan C meets the requirements of accounting standards and, to some extent, expresses the management's business thinking, providing a certain incentive in assessments. At the same time, it does not exaggerate the operational performance created by the bound volume, preventing management from adjusting profit structures for assessment purposes, which should be a relatively reasonable plan.

I provide this example to illustrate that financial personnel must perform their supervisory and management functions without precise financial accounting. Financial accounting and financial management complement each other; neither can be absent!

(2) Knowing how to do accounts sometimes equates to knowing how to manage earnings.

Earnings management refers to the adjustment of accounting profit by financial personnel at the request of management. Since it is an adjustment, there can be both increases and decreases. Because business operations are continuous, the increase and decrease behaviors only exist within a time period. When viewed over the entire lifecycle of the enterprise, the increase or decrease of accounting profit is an overall behavior; today's decrease is for tomorrow's increase, and vice versa; the total remains unchanged. Understanding the essence makes it easy to comprehend why a company would reduce profits. The old saying goes, "Having surplus grain at home keeps one calm." For management, the adjusted profit is their surplus because the governing body (mainly referring to the board of directors, shareholders, or government regulatory agencies) will only raise demands on management and never lower them, and these demands are continuous; unless you leave your position, the task will always follow you. If you achieve a 20% profit growth this year, shareholders will require that next year at least not fall below this number; otherwise, it indicates a lack of effort or ability. However, the actual growth this year may simply be due to good luck, such as landing a big contract. Good luck cannot be expected every year; under the current market environment, maintaining growth next year would be considered good. Due to this year's 20% growth, the base increases, and if not managed well, next year may even see negative growth; at that point, not only is the bonus at risk, but the position may also be in jeopardy. At this time, management can only ask financial personnel to find ways to ensure that this year's profit can grow by 20%, but we can remove the factors of that big contract and only reflect normal performance; the profit from that big contract can be released in future years or averaged out. This way, it is easier to explain to the higher-ups. This year, profit growth of 10% can be achieved, and next year, even in a deteriorating market, through potential digging and efficiency improvement, we can maintain high growth and reach 15%. Thus, shareholders will be pleased, and regulatory authorities will also be pleased, and perhaps bonuses can even double!

You may ask, isn't this just cheating? Whether it is cheating depends on who you are talking about. There was once an analyst from a fund who frequently called me to inquire about our company's profit situation. Of course, I could not disclose anything before the information was made public; I could only say that our performance was stable and that maintaining growth was not a problem. This person firmly opposed that; the implication was that we should maintain super high growth, and profits should increase by at least 30-50% this year to boost the stock price! I asked, what about next year? The other party replied, "We will talk about next year when it comes." In fact, I understood his meaning: if the company's profit grows by 30% this year, he would know in advance and buy in early, making a profit and then leaving; as for next year's performance decline and stock price plummeting, it would not concern him. Therefore, for small shareholders (who have no information and can only be the ones left holding the bag) and for major shareholders (long-term investments, short-term stock price fluctuations are meaningless), maintaining stable profit growth can maximize interests! From this perspective, our statistical department is the biggest expert in earnings management!

Thus, earnings management or directly adjusting current profits is not necessarily a bad thing; it is like evaluating a person; pointing out their shortcomings directly may embarrass them and could backfire, while changing the approach, rephrasing, and packaging your message can sometimes yield better results. Earnings management has a market, a demand, and is widely present in various industries; for financial personnel, especially financial managers, it is not a question of whether to do it or not, but how to do it best to maximize the interests of both the enterprise and oneself.

2. Know how to write financial reports

Financial reports are written documents that reflect a company's financial status and operating results. Typically, a complete financial report includes a balance sheet, income statement, cash flow statement, statement of changes in equity, and notes to the financial statements, known as the "four statements and one note." The operating results and asset status of a company over a year ultimately need to be reflected through financial reports. Whether it is managers, shareholders, borrowers, or clients, to understand the true situation of the enterprise, they must first obtain this report. Because financial reports are so important, regulatory authorities have raised their disclosure requirements in recent years. How to prepare financial reports well to meet the needs of various report users is an issue that we financial personnel should pay attention to.

Preparation of Financial Reports#

(1) Do a good job in financial basics

Every year, the end of the year is the busiest time for financial personnel, preparing to produce reports, reconciling bank accounts, counting cash and inventory, clearing accounts receivable, accruing depreciation, and these are all basics. At the same time, we must also pay attention to whether provisions for bad debts on receivables and inventory have been fully accrued according to accounting policies, and whether the income and costs that should be recognized have been recognized according to standards, etc. Only after all these basic tasks are completed can we begin preparing financial statements.

(2) Preparation of the Balance Sheet

It is not enough to just fill in the numbers in the report after completing the necessary accounts; the items in the report mostly correspond to those in the books, but there are differences in presentation. When preparing the balance sheet, attention must be paid to whether the classification of items is accurate, which is an issue that many financial personnel easily overlook. For example, negative accounts receivable should be recorded under prepaid accounts, negative accounts payable should be recorded under accrued accounts, and there are distinctions in the classification of financial assets, such as trading financial assets, available-for-sale financial assets, held-to-maturity investments, and long-term equity investments. Deferred tax assets and deferred tax liabilities are difficult points in financial accounting, which need to be analyzed and filled out item by item according to the requirements of tax accounting and tax laws.

Expense accounts are also a common occurrence in the balance sheet. What is an asset? An asset refers to resources that have arisen from past transactions or events, are owned or controlled by the enterprise, and are expected to bring economic benefits to the enterprise. Based on this definition, some pending matters that frequently appear in accounting processing, such as prepaid expenses and pending property losses, are virtual assets that cannot bring economic benefits to the enterprise and should be promptly cleared and reflected in the current profit and loss in the report. Similarly, accrued expenses, being future expenditures, should also be excluded.

(3) Preparation of the Income Statement

Several key points need to be noted when preparing the income statement. For example, financial expenses and government subsidies are generally processed on a cash basis; if you have fixed deposits, interest that has not been received cannot be accrued, and similarly, if you have documents but have not received government subsidies, they cannot be recognized as non-operating income in advance; if there are long-term equity investments accounted for using the equity method, remember to ask the other party for their statements at year-end to accrue investment income based on the equity ratio; income tax expenses cannot simply be calculated by multiplying the taxable income by 25%, and deferred tax adjustments must also be considered. Finally, special attention should be paid to the connection between the income statement and the balance sheet; since the new standards have transferred the information previously reported in the profit distribution statement to the statement of changes in equity, some financial personnel neglect the verification of the undistributed profits at the end of the income statement with the undistributed profits in the balance sheet (I have even seen some audit reports with such basic errors of unbalanced statements). There are also some less noticeable small details, such as the minority interest from the previous period (in the absence of unexpected changes in the current period) plus the minority interest for the current period should equal the minority interest for the current period, etc.

(4) Preparation of the Cash Flow Statement

On the surface, the cash flow statement cannot directly extract numbers from the accounts, and it seems unrelated to the previous two statements, but in fact, there are connections among the three; the cash flows from operating activities are closely related to the items in the income statement, with the difference being that the former adopts a cash basis while the latter adopts an accrual basis, reflecting two aspects of the same issue.

The cash flows from investing activities focus on reflecting the changes in major assets in the balance sheet and the income from those assets, while the cash flows from financing activities focus on borrowing, repayment, and changes in the equity section of the balance sheet.

We should also note that according to current regulations, the "ending cash and cash equivalents balance" in the cash flow statement is no longer necessarily equal to the "monetary funds" in the balance sheet. The cash flow statement pays more attention to the liquidity of money, so other monetary funds such as deposits with restrictions on liquidity are no longer considered cash and cash equivalents, but are still regarded as monetary funds.

(5) Preparation of the Statement of Changes in Equity

The statement of changes in equity reflects the changes in equity over a certain period. This statement is actually a supplementary explanation of the equity section in the balance sheet; as long as the previous three statements are filled out correctly, this statement can be easily generated.

(6) Preparation of Notes to the Financial Report

Notes are an important part of the accounting report and provide detailed explanations of the items listed in the previous four statements. Of course, parts that cannot be listed in the report can also be supplemented in the notes.

I believe that good notes should explain as many items listed in the report as possible; important items with changes of over 10% should be explained in detail; for unimportant items with changes over 30%, detailed explanations should also be provided. The descriptions should be simple and clear, so that non-professionals can understand them.

An important content of the notes is significant accounting policies and estimates, which are actually the foundation for preparing the report and directly determine the direction of report writing; both the report preparer and the user should pay attention to this.

Good accounting policies and estimates should be designed in conjunction with the company's operating conditions; if the operating environment or market conditions change, the accounting policies and estimates should also change accordingly. Of course, the premise is that they comply with the relevant provisions of the "Enterprise Accounting Standards."

For example, a diversified group company with its main business in manufacturing and also engaged in commercial trade should set the proportion of bad debt provisions for accounts receivable according to industry types; accounts receivable in manufacturing generally have a longer collection period, and customers are relatively stable, so the risk of bad debts is relatively low; commercial trade has a low gross profit margin, relies on volume, and has significant customer turnover, requiring quick turnover to reduce risks; once overdue, the risk of bad debts is high. Therefore, for these two different industries, the proportion of bad debt provisions for accounts receivable should be set based on their industry characteristics and actual situations, which is not only responsible to investors but also a management necessity.

Some financial personnel do not write notes at all, and if necessary, they let accounting firms write them, which is certainly not right. The process of writing notes is also a process of increasing understanding of the enterprise; through this process, discovering some issues and providing management suggestions is an obligation of financial personnel.

Having discussed preparation, how can business managers and investors reasonably use and understand financial reports to serve business management or investment?

Understanding Financial Reports#

Monetary funds: As an asset category, we generally focus on the authenticity of its ending number but often overlook its occurrence; we remember to reconcile statements, but few people carefully check the transaction flow. From my experience, financial supervision is crucial for asset management, and cash is the easiest to misappropriate, so reconciling bank statements and checking whether all occurrences are recorded in a timely manner is very necessary.

Notes receivable: I have always believed that bank acceptance bills in this category should be classified as monetary funds and closely monitored. Because bank acceptance is a negotiable security that can be directly endorsed for payment or discounted, its liquidity is not weaker than that of fixed deposits, but the risk of problems is much greater than that of fixed deposits. If a relevant person has a large acceptance bill with six months until maturity, and the company's internal control is not strong (many companies may require monthly bank reconciliations but do not check bank acceptance bills every month), then they are very likely to discount the bank acceptance, pay some discount fees, and extract cash to speculate in stocks, lend money, or even gamble; then repay the money when it matures. One can imagine how great the risk is.

What about commercial acceptance bills? The standards do not require that commercial acceptance bills must accrue bad debt provisions; many enterprises adjust profits by reducing bad debt provisions, and at year-end, they will convert some accounts receivable into notes receivable. Since commercial acceptance bills do not have bank guarantees, the risk of bad debts is essentially the same as that of accounts receivable, and listing them alongside bank acceptance bills in the report can be misleading. My suggestion is that enterprises should proactively treat commercial acceptance bills as accounts receivable based on the principle of substance over form and implement the same accounting policies.

Other receivables: After the new standards were issued, accounts such as prepaid expenses and pending property losses disappeared from the reports, but this does not mean that enterprises no longer set these accounts; if not processed in a timely manner at year-end, the balances of these accounts will ultimately be reflected in other receivables; also, enterprises may adjust profits by hanging some already incurred large expenses at year-end, which will also be recorded under other receivables. Therefore, if the ending balance of other receivables in the report shows a significant increase compared to the beginning balance, investors should pay extra attention.

Accounts receivable: The biggest problem with accounts receivable is the accrual of bad debt provisions; the aging analysis of accounts receivable is a difficult point in financial work. If daily work does not pay attention to proper record-keeping, it will be challenging to analyze accurately at year-end. Some financial personnel simplify the classification for convenience, making accuracy difficult to guarantee. I believe that aging is not only for accruing bad debts; for operators, strengthening the business assessment of personnel through aging analysis is the most important. Generally speaking, if accounts receivable remain uncollected for over a year, the likelihood of bad debts is high.

Inventory: The risk of inventory lies in how much of the ending inventory balance reported is real. As mentioned earlier, simple and crude accounting can adjust current profits by over- or under-transferring inventory costs; a more sophisticated approach involves manipulating the composition of inventory costs, allocating a large amount of period expenses as manufacturing costs into inventory costs. Although certain auditing methods can detect such issues, for ordinary investors, inventory is always a high-risk area.

How to view inventory? First, look at the structure; second, look at the aging. The structure refers to the proportion of raw materials in inventory; since raw materials are all purchased externally, their realizable value is strong, and depreciation may be small. If a company's inventory mainly consists of raw materials, the risk will be much lower. Aging is also important; generally, raw materials with long aging are acceptable, as the enterprise may be stockpiling for appreciation. However, if finished goods have long aging, their value should raise significant concerns. Here, there is an issue of accruing impairment provisions; since inventory impairment provisions are generally accrued based on the net realizable value of inventory compared to its book value, estimating the net realizable value is inherently challenging, especially if the market is opaque or fluctuating significantly. Therefore, many financial personnel do not accrue impairment provisions at year-end, or for profit adjustments, they intentionally overestimate or underestimate impairment provisions. Since provisions can be reversed after accrual, inventory impairment provisions have become an important means for some financial personnel to adjust profits.

Fixed assets, intangible assets, and construction in progress: Not accruing the necessary depreciation, not amortizing what should be amortized, and not transferring what should be transferred to fixed assets are all common initial methods used in financial fraud. The methods may be somewhat elementary, but they are still effective, so the new standards have strengthened the disclosure content and requirements for notes; as long as the structure and changes of fixed assets and intangible assets are clearly explained, the difficulty of committing fraud in this area will increase.

Of course, loopholes still exist; fixed assets can have accelerated depreciation, intangible assets can have issues of capitalization versus expensing, and construction in progress can delay the transfer to fixed assets, thus reducing depreciation accrual. This is also a point that accounting treatment needs to pay special attention to.

Government subsidies: Government subsidies are relatively easy to encounter problems because the authority to grant subsidies lies with the government, and the granting agency may not fully understand the situation of the enterprise, leading to unclear positioning from the source. Some enterprises, for convenience, do not distinguish between asset-related and income-related subsidies when accounting for government subsidies, and directly include subsidies related to projects as current income. There are also many cases where enterprises prematurely recognize income from subsidies not yet received, or conversely, fail to recognize received subsidies in a timely manner.

Cash flow statement: This is a report that many operators tend to overlook, but in fact, this statement provides very important information because it uses the cash basis; how much is received and how much is paid are all clear accounts, making it difficult for financial personnel to control. Therefore, the cash flow statement often reflects the true operating situation of the enterprise in one aspect.

Many enterprises prepare cash flow statements quite casually because the balance sheet and income statement mainly extract numbers from the accounts; if cash accounts do not have auxiliary accounting done regularly, the financial personnel will have to manually prepare the cash flow statement at year-end, making it difficult for non-professionals to verify the authenticity of the numbers reported in the cash flow statement. However, it is also straightforward to judge whether the cash flow statement is authentic; attention should be paid to the cash flows from investing activities and financing activities, as these two items are closely related to the balance sheet, and a comparison can reveal whether the preparation is correct. Correspondingly, if these two items are correct, the net cash flow from operating activities can be calculated backward. How to judge the quality of the information reported in operating cash flows? Pay attention to the other payments made and the other operating cash flows received; many people, when unable to balance the cash flow statement, will push the discrepancies into these two items. If these two items have relatively large numbers (which should be considered in conjunction with the scale of the enterprise), the operating cash flow may be distorted.

Many people like to understand a company's salary level; by dividing the cash flow statement's payments to employees and the cash paid on behalf of employees by the number of employees, one can roughly calculate the average salary level of the enterprise. Of course, this number reflects the total cost of the enterprise's personnel, including the company's burden of social insurance and housing fund; the actual amount received by employees is certainly less. Some enterprises may want to hide profits and accrue some payable employee compensation at year-end; by comparing with the cash flow statement, if the payments to employees this year and last year do not show significant changes, then the payable employee compensation should not show significant changes either (some enterprises may have part of the year-end bonus accrued for next year, which is normal).

Comparing the cash received from sales of goods and services with operating income, generally speaking, the former should be greater than the latter because the cash received from sales includes tax; if the former is much smaller than the latter, caution is warranted. Then check the balance sheet to see if there are large amounts of accounts receivable that have not been collected; perhaps the enterprise is overestimating income, and the potential risk of bad debts is also increasing.

In summary, the success or failure of a company's operations ultimately needs to be reflected through financial reports. Only by preparing financial reports well and using them effectively can we understand the essence of the operations reflected in the reports, thereby ultimately providing valuable information for business managers and investors.

3. Know how to write financial analysis

What does qualified financial analysis look like? We usually think that the more detailed the text and the more indicators included, the clearer the expression, and the more satisfied the leaders will be. This viewpoint is not entirely incorrect, but I still believe that content is more important than form. Good financial analysis should pay attention to two aspects: first, consider the audience—who is it written for? If it is for professional analysts, the more detailed, the better, because they are outsiders and do not understand your situation; if it is for internal management, it does not need to be lengthy—leaders are busy, and they are not professionals; if you write too many technical terms, it will be tiring for both you and them, so focusing on key points is crucial. Second, it must be combined with business; financial analysis cannot be discussed in isolation from business; the core of financial analysis is still business; separating it from business is separating it from reality. A few dry numbers may look good on the surface but have no value.

Therefore, relying solely on writing skills and proficient use of indicators will not yield qualified financial analysis; the most important thing is always to analyze the authenticity of the numbers. Keeping accounts well in a timely manner, without serious flaws in internal control, will yield even just the three main statements, which is better than writing dozens of pages of text with illustrations but based on false accounting numbers in the financial analysis report.

4. Know how to manage finances

In my understanding, financial management is about finance and management: finance is a behavior, and management is a goal; financial behavior should serve management goals.

The process of financial management is essentially the process of the finance department interacting with other departments. As an important functional department of the company, the finance department has its characteristics when dealing with other departments. The finance department focuses more on supervising other departments, requiring compliance and reasonableness in reimbursements; for business departments, it requires complete and credible contracts, and controllable risks, etc. Therefore, financial management can also be said to exercise supervisory functions from a financial perspective. If a company's finance department is only responsible for receiving information and converting it into accounting information to ultimately form three statements, such a finance department can only be considered an accounting department or a calculation department. A true finance department should develop its accounting methods based on supervisory functions, allowing accounting to serve management—accounting is a means, and management is the goal.

Having said so much, what exactly does financial management cover? In my view, any management activity related to operations will involve finance, so financial management can also be understood as needing to manage everything. However, being asked to manage does not mean managing blindly; your role is financial, so you can only manage matters related to finance.

(1) Manage money. This is the most important aspect of financial supervision over monetary funds because a company revolves around one goal from establishment to termination: "making money!" If you observe closely, you will find that although the management methods in various industries differ, the ultimate goal is the same: to put the money in hand out to generate more money. Therefore, strengthening accounts receivable management is to collect money, strengthening inventory management, strengthening fixed asset management, and strengthening intangible asset management, etc., is the same. Regardless of the size of the enterprise, the first thing to do when opening for business is to manage money well. Large enterprise groups are even more so; collecting funds from subsidiary companies and arranging them centrally is not only for maximizing benefits but also for ensuring fund safety. There are too many cases where a small cashier takes money to speculate in stocks, futures, or lend money, ultimately causing huge losses, all due to inadequate supervision. With too many subsidiaries, the quality of personnel varies, and even with systems in place, it is difficult to execute effectively, so collecting funds and managing them centrally is the way to go! How to manage the collected funds depends on the specific situation of each enterprise. Any resource concentrated together will always have a greater effect than when dispersed, especially when it comes to money. We can negotiate with banks to provide agreed deposit rates; we can sign strategic cooperation agreements with banks to obtain larger credit limits and more convenient services; we can talk to trust companies to buy some trust financial products, sometimes achieving returns of over 10%, which may even be higher than the gross profit margin of the company's main business; we can also establish a financial company within the group to adjust funds, using surplus to make up for shortages, reducing the cost of fund usage. In short, if you manage money well, everything else will be easier!

(2) Manage inventory. On one hand, it is about accounting management, mainly focusing on the aggregation of costs; attention should be paid to manufacturing costs, which is the capitalization of period expenses that adjusts profits; it is recommended to conduct financial analysis of manufacturing costs while simplifying the detailed items of manufacturing costs; items like business entertainment expenses and office expenses should never be set. Additionally, there is the issue of aging; it is essential to conduct aging analysis, and inventory over one year should be impaired unless there is evidence to prove appreciation, otherwise, impairment must be accrued, making subordinate units aware of the impact of long aging on performance to achieve the goal of revitalizing assets.

(3) Manage investments. It is best not to allow subordinate units to have the authority to invest and manage; operations are operations, and investments should be managed by the group; the waters are too deep, and the risks are high; once power is decentralized, management becomes impossible. How to invest can be another book; I will not elaborate here. It is worth reminding that for simple financial investments, the finance department should have a larger say, but for strategic investments, such as establishing or acquiring a company or entering a certain industry, financial personnel should stick to their roles and not casually express opinions on matters that are not their concern. Finance should focus on the authenticity and reasonableness of the financial data of the invested party.

(4) Manage transactions. The focus of transaction management is on credit; here, credit refers to the credit extended to customers. Financial personnel must recognize that accounts receivable are equivalent to short-term loans, and overdue receivables that cannot be collected have opportunity costs, which can also lead to losses for the enterprise; many bad debts often arise from prolonged non-collection. A unified credit system should be established, and through information technology, credit periods should be fixed, prohibiting further shipments for overdue accounts.

(5) Manage procurement and sales. This is the most important and the most difficult to manage. If it is a group company, it is best to centralize procurement and sales rights, establishing a dedicated procurement company and a professional sales company; however, this approach also has its issues, as you cannot guarantee that the dedicated personnel in the procurement or sales company will not have problems. It is advisable to involve production units at least to have a say, creating mutual checks and balances.

5. Utilize information technology

Here, I want to emphasize the word "utilize." We do not require everyone to be proficient in everything, but in today's era, information technology is an unavoidable issue for any position, especially for financial positions, where information technology has clearly replaced the functions of accounting. However, information technology is not omnipotent; it cannot replace financial management positions, which requires us to master certain information technology skills and utilize them to enhance financial control capabilities to serve enterprise management work.

Utilization does not equal reliance. The impact of information technology on various industries is evident, leading some people to develop the illusion that they can always turn to information technology! When there is a management need, they look for information technology; when there is a management problem, they also look for information technology. In fact, information technology is ultimately a tool, and the final solution to problems still relies on people. Some enterprises have implemented information technology for many years and have installed many modules, but their management levels have not improved much, and in some cases, have even declined. The main reason is excessive reliance on information technology, failing to grasp the essence of the problems. In the past, when internal control issues arose, one could find the responsible person; now, when internal control issues arise, it becomes a system problem, a flaw in the system, and no one is held accountable. Over time, not only do problems fail to get resolved, but they also multiply.

6. Know how to do budget management

When intermediary agencies or higher authorities audit or inspect a company, they usually ask, "Do you have a budget?" Whether or not there is a budget has become an important indicator of a company's management level. The usual response is the same: "We have a budget." In reality, the vast majority of companies that reach a certain scale have budget management, but the degree of execution varies. The ultimate goal of budget management is to achieve comprehensive budget management; many enterprises will shout this slogan, but not to mention company leaders, even financial personnel, how many truly understand what comprehensive budgeting means? I once asked a consultant from a nationally renowned software company: "How many companies have truly implemented comprehensive budgeting successfully?" The response was that none of the companies he had implemented comprehensive budgeting for had achieved the goal; most companies merely claimed to have done so. This illustrates the difficulty of comprehensive budgeting. Therefore, financial personnel should understand the following key points when making budgets for enterprises:

(1) First, tell executives that budgets cannot be solely prepared by the finance department (of course, if it is just for the higher authorities, the finance personnel can prepare budgets, but they will be superficial efforts). To prepare a budget, the entire company must have a budget consciousness, from setting goals to drafting, from execution to assessment, every department must participate. The finance department can take the lead, such as training, answering questions, and providing guidance, but the core must always be the top leader; without the full support of the top leader, budget goals will never be achieved.

(2) Set budget goals based on the actual situation of the company. It is important to understand whether the budget is for controlling expenses or costs, or whether investment and financing should also be included. Initially, do not set goals too large or too high; otherwise, the budget will become disconnected from reality, and doing it will be equivalent to not doing it, ultimately demoralizing the team and making next year's pressure and difficulty even greater.

(3) Achieve a balance between accrual basis and cash basis. Financial budgets should certainly be centered around finance, but this does not mean they should be centered around accounting standards. Many financial personnel are accustomed to preparing budgets according to accounting methods; whatever accounting accounts exist, the budget will have corresponding accounts; if accounting requires three statements, the budget must also produce three statements. However, such budgets only look good on the surface and lack focus, ultimately yielding poor results. For example, in preparing a cash budget, the purpose is usually to ensure sufficient funds for the company's operations throughout the year without any idle funds. We need to break it down to see how much cash is available each month or even each week, how much cash is flowing in, and how much is flowing out; if outflows exceed inflows, how large is the gap? This clearly requires the application of cash basis principles.

(4) The operating budget must be linked to the financial budget. The operating budget is prepared by the business department, while the financial budget is prepared by the finance department; the success or failure of a company ultimately depends on the quality of business operations, so the financial budget is based on the operating budget, and the goal is to serve the business. Therefore, the operating budget cannot be prepared by the finance department alone, but they cannot prepare them separately either; the finance department should train the business department in budget management knowledge, assist in setting budget goals, and facilitate communication and explanation to help the business department complete the operating budget work.

(5) The budget serves as the basis for assessing the work of each department. Most budgets become formalities because the final assessments are not in place. If the budget cannot serve as a basis for assessment, no one will pay attention to it, and next year, no one will take the budget preparation seriously. Even if management goals are set reasonably, without execution, they will not be realized.

7. Broadly understand various types of knowledge

As mentioned earlier, financial management requires us to interact with various departments, and the premise for communicating with people is to understand the other party, grasp their positions and thoughts; otherwise, if each speaks their own language, it will be difficult to achieve results. Externally, we frequently interact with tax, industry and commerce, finance, and other departments, as well as regulatory agencies in special industries, so we must know at least the basic administrative regulations and processes. It is beneficial to read financial news regularly, as it can be useful at critical moments. Internally, the connection with business departments mainly involves risk and assessment; controlling business risks requires us to understand certain industry characteristics. If you have import and export business, knowledge related to exchange rates and import-export trade is essential. The latest financial reports of listed companies require disclosure of risks related to financial instruments, which is already an important mandatory item; the knowledge involved in disclosing credit risk, liquidity risk, and market risk (including exchange rate risk, interest rate risk, etc.) is quite broad, and without a certain level of financial knowledge, it is challenging to read the reports, let alone prepare them. Risks are like this, and so are cost and profit calculations; different business types have different accounting methods. The core of cost accounting in manufacturing is budgeting, which is quota cost management; without quota costs, it is impossible to compare with actual costs, and real-time monitoring cannot be achieved. Cost accounting in the trading industry is relatively simple; the focus is not on calculating gross profit margins but on calculating opportunity costs or capital costs. For example, if a business has a gross profit margin of 2%, it is considered good in the trading industry, but if the payment period is one year, the final return may not be as high as that of fixed deposits; it seems profitable, but in reality, it is a loss. Different business management focuses differ; to grasp the key points, we must understand the business and at least avoid speaking as outsiders.

Financial Advancement Guide#

What has been discussed so far are the preparations needed to be a good financial person, but many people's career goals are not just to be a good financial person; they have higher expectations for themselves, such as becoming a CFO in a Fortune 500 company. I can only apologize here, as I cannot help much with that, as it is also my career goal. If your goals are not so lofty, the following content is still worth reading; although it may not be systematic, it can be considered one perspective.

1. What changes should financial thinking undergo in the new situation?

Now the whole world is talking about internet thinking; even traditional industry leaders must adopt an "internet+" approach, or they will be left behind and swept away by the tide. Whether this viewpoint is overly radical is not for discussion here; time will verify it. What I want to say is that in the new situation, financial personnel must also have new thinking and new ideas; if we merely remain in the past, no matter how well we perform, it will not be enough.

(1) Accounting calculations will no longer be the focus of the finance department's work; being versatile or even multi-skilled will be the development direction for financial personnel.

Information technology is replacing traditional accounting calculations and even more accounting functions. Through network technology, an accountant from an accounting firm can manage the accounts of 150 to 300 companies, which means that 150 to 300 accounting positions have disappeared. This is faster than robots replacing industrial workers! This is the power of technological advancement!

Some may say that accountants still have supervisory functions, and accounting firms cannot fulfill such roles, so medium and large companies still need accountants. This statement may be true for now, but it is hard to say whether it will still hold in the near future. In fact, a well-developed enterprise information system will form a closed loop, embedding internal control systems, and most accounting supervisory functions will be front-loaded into every business link, mutually controlling and supervising, which is more effective and convenient than traditional accounting supervision. For example, expense reimbursement systems can monitor expense spending in real-time through the internet; reimbursement personnel no longer need to find people to sign off and do not need to find accountants to review documents; cost accounting is no longer just the finance department's responsibility; the ERP system handles everything, and the finance department only needs to confirm; unless there is solid evidence, the finance department does not need to change any numbers. Therefore, in the future, the information technology department's position will be very important. Since IT industry elites generally have specialized skills, the current information management departments are often engaged in logistical work; if more management talents in internal control enter the information department, it will be easy to assess whether the system is effectively running in real-time and periodically or irregularly upgrade and transform the system based on operational directions and management ideas, exercising control functions.

Does this mean that financial personnel have no future? If you are still a traditional accountant and do not transform, your career will indeed be somewhat bleak; if you are a versatile or even multi-skilled financial elite, there will still be many opportunities for you. Observant people will find that financial work is almost related to all management work. In human resource management, once personnel come in, they need to be utilized well; to retain talent, incentives are necessary, and to incentivize, money is involved; performance assessments, bonus distributions, stock option incentives, and equity incentives are all related to finance. In investment management, from formulating investment strategies to achieving investment goals, financial work is indispensable. Business management goes without saying; sales personnel have targets and tasks, and their primary goal is to claim they have made money and receive commissions; finance must verify whether they have indeed made money and how much commission they should receive. Budget management and internal control management are also management tasks centered around finance. If you truly feel that financial work is uninteresting, as long as you have the skills, transformation can happen in an instant. It has been statistically shown that among the CEOs of Fortune 500 companies, the largest number come from sales backgrounds, followed by those from finance. The information department mentioned above may also be led by financial personnel in the future.

(2) Place the income statement at the back.

What kind of financial management do modern enterprises need? First, resource allocation, especially cash allocation; second, risk management—note that it is not risk prevention, as risks are everywhere, and prevention is impossible; businesses without risks do not exist.

First, let's talk about resource allocation. For an enterprising enterprise, resources are always insufficient, so reasonable allocation is crucial. On a large scale, it involves introducing strategic investments, issuing stocks and bonds; on a smaller scale, it involves financing leases and issuing bank acceptance bills. Effective resources must be allocated to the departments that need them most to generate the highest benefits (but note that the highest benefits here are not immediate but planned within the period). At the same time, it is essential to ensure that internal controls are effective and risks are manageable. Therefore, the primary task of financial personnel is no longer to cut costs (opening up is not a financial matter). The money-burning war of ride-hailing apps in 2014 is something that traditional financial personnel could not have imagined; there were no profits, only expenses—how could they cut costs? At this time, ensuring cash flow becomes the primary task of finance.

(3) Centralization over decentralization.

I often hear company leaders say: "Finance should be at the core!" But I have never seen a company that can truly achieve this because, in fact, it is impossible. Every enterprise must make money, so whoever can make money is at the core. The finance core may not be possible, but financial personnel should not belittle themselves. One of the biggest characteristics of the information age is information explosion; information comes in large quantities and at high speeds. In the past, accountants had to sit in the office waiting for documents to arrive before they could calculate and finalize accounts. When something went wrong, accountants often said, "If the business does not provide, how would I know!" Now it is different; information technology provides financial personnel with a powerful database, allowing us to reach into the business front in real-time to analyze and mine useful information. In the past, decentralization was due to multiple management levels and low efficiency; now, it is all-around business sharing and all-around information sharing, and decentralization is counterproductive to standardization and normalization. Therefore, centralized control is the future direction; financial personnel must reach into the business front, analyze data, and mine information; mainly to extract useful business information to serve centralized control.

(4) Adhere to a problem-oriented approach.

The core of management is people, and managing people is based on solving one problem after another. Financial work is management work, so financial personnel must also be problem-oriented, dedicated to solving practical problems that arise in management. We often complain that leaders do not value finance, but that is because we solve too few practical problems for them. In modern society, with rapid economic development, new ideas and concepts emerge endlessly, and traditional accounting theories can no longer keep up with business development; fundamentally, accounting calculations serve business (many accountants do not acknowledge this viewpoint, believing that the main work of accounting is to supervise business), and when business changes, accounting must also change. It cannot be said that if the standards do not stipulate it, this business cannot be conducted. Theoretical construction is not our ordinary person's business; our task is to solve practical problems one by one to ultimately achieve control goals.

(5) The boundary between financial information and business information becomes blurred, truly achieving the integration of finance and business.

In the information age, business processes, financial processes, and management processes will organically merge, and financial data and business data will become one. In the past and present, the finance department provided financial data, while the business department provided business information, with independent information. When a company needs to release a report, the data provided by different departments may not match, and it is unclear which information is correct. In the future (in fact, many large companies have already achieved this), financial information will not just be a few dry indicators; financial personnel will mine non-financial information, such as business information and market information, because financial information originates from business information, and business information also contains a lot of financial information, making the boundaries between the two increasingly blurred. In the not-so-distant future, merely analyzing the three main statements will be far from enough; financial analysis will primarily focus on business analysis, and financial analysis reports will become more accessible.

2. From the small to the large, from non-recurring gains and losses to earnings management.

I believe that the most sought-after accounting books in the market are not those that teach people how to do accounts but those that teach people how to do fake accounts! For readers with such needs, I must remind you: fake accounts are illegal, unethical, and against regulations; more importantly, companies that engage in fake accounting are mostly small and unregulated, and working in such companies does not hold much promise.

In life, many people equate financial experts with fake accounting experts, which is certainly a misconception. The excellence of a financial expert should lie in management and in creating value for the enterprise, not in playing small tricks. However, for beginners, it is still necessary to understand where fake accounts go wrong and how to detect them. In fact, there are different levels of fake accounting: beginner, intermediate, and advanced. Beginner fake accounting usually involves simple and crude methods, such as misclassifying expenses as costs; clearly selling goods but creating a fake inventory report to show they are still there. Intermediate fake accounting involves communicating with leaders and business personnel before doing the accounting, clarifying the goal: whether it is to meet upper management's tasks or to evade taxes; if evading taxes, one must pay attention to which taxes to evade, what invoices to issue, and even if cash can be received, it is better to offer a discount to receive cash; expenditures should also be handled similarly, using personal accounts for external circulation, etc. Advanced fake accounting is not something ordinary people can discern; it usually occurs in large groups or even multinational corporations, with a dedicated team managing it, having specialists study the tax policies of various countries, and starting operations from the establishment of a business type to a company's inception; even if local governments discover it, they are often helpless because they exploit loopholes in policies; if anything, it is the policies that are problematic. A recent representative case is Starbucks "evading taxes" in the UK. The statutory corporate income tax rate for multinational and local companies in the UK is 30%. Starbucks, using legal tax avoidance strategies, has had 3 billion pounds in sales over 14 years of business in the UK but has only paid 8.6 million pounds in income tax