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Why do we say to be a good "financial" professional instead of just a good accountant? Because it carries the meaning of redefining the role of finance. What is accounting? According to ancient definitions, "accounting" consists of "counting" for small amounts monthly and "meeting" for the total count annually; together, they form "accounting." So, from a literal perspective, ancient accounting was merely about calculation and statistics, and 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, simply put, it became about 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 stemmed 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 Promoting the Construction of Management Accounting System," followed by a series of policy interpretations to provide specific guidance for the comprehensive promotion of management accounting system construction. All of this sounds quite exciting, but in practice, applying it within enterprises is fraught with difficulties. There are many constraining factors, but I personally believe that the lack of a change in mindset is a significant reason. Many finance professionals initially position themselves as record-keepers and calculators, at most adding a bit of supervision. Some have worked in accounting positions for over a decade without understanding their company's business characteristics, let alone promoting the integration of business and finance. In this situation, to outsiders, the role of finance professionals appears even narrower; they see the main tasks of accountants as bookkeeping and payments, with no connection to management.

Of course, changing mindsets takes time, and we can only start from ourselves, taking it step by step. I suggest that the first step is to redefine finance professionals, shedding the label of accountant and telling the public that we are finance professionals and also managers—managing a company's people, finances, and assets; aside from "people," which 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 job functions. Only by accurately identifying our roles can we facilitate our work.

What constitutes a good finance professional?#

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

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

2. You should be working in your field of finance. This may seem like a trivial statement, but it is not. There are many individuals with high qualifications (such as senior accountants), high positions (such as chief accountants), and high incomes, but these individuals are not actually doing finance work, and their career paths may not follow the traditional routes of finance workers, which most people cannot replicate. Therefore, the good finance professionals mentioned in this book do not include such individuals. Some may work as cashiers, claiming to be accountants, but in reality, they are merely custodians of funds, often engaging in more hands-on work than intellectual work, and if they do not change positions, their opportunities for advancement are limited.

3. You should have a relatively high income. What constitutes "high"? It depends on comparisons: among peers, you should be above average; within the same city, you should also be above average. In short, you should be slightly above the average—do not underestimate this point; achieving it requires much more effort than the average person. Those in finance know that we study and take exams more than in other professions, starting from the accounting qualification certificate, then assistant accountant, intermediate accountant, and 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 valuers, and even registered land valuers, registered cost engineers, etc., making for an endless array of certifications! Passing these exams is not the end; there is also continuing education every year—this is theoretical, but in reality, standards are constantly changing, and if you do not study for a few years, you will forget most of the professional knowledge. Therefore, to be a qualified finance professional or even an excellent finance elite, the road ahead is still long and difficult.

Next, let’s discuss what preparations are needed to be a good finance professional.

1. Love your work; we need to genuinely fall in love with finance.

This may sound cliché, but the fact is that many finance professionals enter the field passively, perhaps due to poor choices in college majors, insufficient scores, or simply following parental advice: finance has a broad job market, and every organization needs it, which is considered a skill. In short, they entered the field somewhat confused, only to find the work monotonous and tedious, with low pay and limited upward mobility, quickly losing interest in their jobs. Some ambitious individuals think about changing careers, but many others just drift along day by day.

In fact, in any endeavor, if you limit yourself to one aspect, you will only see its drawbacks. But looking at it from another angle, we are in the best era for finance professionals. 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 majority of accountants were still perceived as wearing large sleeves and thick glasses, seemingly always sitting by the window calculating, recording, and closing accounts; handwritten documents piled up on desks, and even a sneeze had to be careful not to scatter the documents. In today's era of information technology, the accounting work that used to occupy 70-80% of our workload has been completed by computers. Finance professionals 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 exploring knowledge 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 vast and rich; why wouldn’t we love a finance job that is both specialized and broad?

2. Do not be a small accountant; aim to be a big finance professional.

It was at the end of the 1990s when I had just graduated and started working at 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 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 a few days, I suggested finding an inventory 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 concrete plan, I could clearly feel the accountants around me getting 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 implemented, it would inevitably mean that fewer accountants would be needed. However, at that time, not many people understood what information technology could bring; the system implementation eventually 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 accountants who used to keep product accounts had all left and never returned to this field.

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

As finance professionals, to keep up with the situation, we must first recognize the situation. In the past, we were often referred to as accountants because our main work was calculation; accounting was all about quick calculations. Now we refer to ourselves as finance professionals, 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 skills 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 abacus calculations. If we are to learn, we should focus on knowledge related to management and internal control.

If you are still doing some simple calculation work, you must pay close attention; always remind yourself to be proactive, thinking and analyzing problems from a manager's perspective. Do not be a small accountant; if you are going to do it, do finance work that cannot be easily replaced.

3. Strengthen business learning and improve your knowledge system.

In my view, modern finance professionals should reflect their value in the following three aspects:

(1) Build an internal control system and improve finance-related systems. The most basic need for business owners when hiring finance professionals is to safeguard their money and assets. 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 is of no use. 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 easy to say but hard to do; if you can truly achieve it, you will be the most beloved relative of the business owners!

(2) Strong analytical and judgment skills. The analysis and judgment here mainly refer to controlling business risk. 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 has to serve the business. Thus, modern finance professionals, 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 hard-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 without slackening!

(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 you express it, you must make sure the audience understands and grasps your intentions. I have seen many finance professionals who work diligently and seriously, with high business levels, but they cannot get promoted mainly due to insufficient communication skills. Finance personnel often complain that business owners do not value finance, but the owners are not professionals and cannot be proficient in every position. At this time, we need to take the initiative to communicate frequently with the owners, letting them understand how much value finance work can bring to the company. External coordination work is the same; banks, industry and commerce, taxation, and finance are all units that finance professionals often deal with, and establishing good relationships with them usually yields significant benefits at critical times.

How does a good finance professional grow?#

I will not talk about theories or concepts here (if you cannot remember basic finance knowledge, please search it online), but will share personal views based on work experience combined with some theoretical foundations, focusing on key points, hoping to be of help to you.

Basic Concepts

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 an 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 classify the diversified businesses of the group; the trade industry is one category, the manufacturing industry is another, and the service industry is yet another. Different business types must be rearranged to see how much income, 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 external mergers and acquisitions, the asset values in the consolidated financial statements differ from the book values of the original legal entities, which requires a revaluation and recalculation process when preparing consolidated financial statements. Understanding the principles of accounting entities will naturally clarify many things that were previously difficult to understand when preparing consolidated financial statements.

2. Going Concern

In life, we often see some stores having their leases expire and holding clearance sales; during this time, the prices of the goods sold will be much lower than usual (if it is indeed a clearance sale). In finance, we would say that this store can no longer continue operating and is in a liquidation phase, which will lead to significant differences in accounting treatment. For companies that are not going concern, many accounting methods we commonly use will not apply; for example, accounting estimates will not need to be estimated, and bad debt provisions will not need to be accrued; whatever can be recovered is what it is; accumulated depreciation will not be calculated, and disposals will be valued at net worth. Whether or not a company can continue as a going concern has a significant impact on our current asset valuation methods.

3. Assets

The recognition of assets has two important conditions: one is whether they are held by the accounting entity, and the other is whether they can create value. The concept is clear, but in practical application, we often overlook the second point. This point excludes items like deferred expenses, long-term deferred expenses, and pending property losses from the balance sheet, as these virtual assets do not have actual value. In the past, when finance adjusted profits, these three items were often used; if there were losses, they would be recorded! Recorded where? Pending! Now, this practice is no longer allowed by standards, but it still exists, just in a transformed form; deferred expenses and long-term deferred 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 item in the three main financial statements is the most important. Personally, I think 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 thus different focuses. Creditors, such as banks, need to consider repayment when lending, so they care about the company's solvency and, in turn, the liquidity of the company and several items related to the debt-to-asset ratio; ordinary investors are most concerned about the company's profitability, so they focus on net profit and the growth of net profit; 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 had to say where their attention is most concentrated, it would still be on these three items: inventory, costs, and expenses. Because if a company is likely to engage in fraudulent activities, these three items are the most likely to be manipulated. Expenditures can be expensed in the current period or capitalized to inflate profits; capitalizing to inventory is not easily detected. We all know that manufacturing expenses should be allocated into the value of finished products, and manufacturing expenses overlap with administrative and selling expenses, such as utilities, labor costs, travel expenses, office expenses, etc.; these detailed items are conceptually the same but are distinguished by finance personnel based on the users; if they can be separated, they can certainly be combined and rearranged.

The relationship between inventory and costs is the same. Inventory can also be over- or under-transferred for various reasons, thus affecting the amount of cost of goods sold in the current period. Detecting such issues is simple; just pay attention to whether financial processing follows the principle of matching revenues and expenses; if there is revenue, there must be a corresponding cost to match it; similarly, expenses incurred in the current period must also match the current period's revenue and cannot be reflected across periods. In practice, audit methods also involve matching; comparing this period with the previous period, or even comparing several years in succession, 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 of the previous period; if there are large increases or decreases that cannot be explained, there may be issues.

Some may think that revenue is also a high-risk area for fraud, but I believe that revenue is relatively easy to confirm; the key points are whether products have been shipped, whether services have been provided, and whether risks have been transferred. If the answers are affirmative, then it can be confirmed; if the answers are negative, then it cannot be confirmed. As for whether invoices have been issued or contracts signed, those are secondary.

5. Substance over Form Principle

The substance over form principle is a professional term in finance, widely used in financial accounting, but it is also one of the more difficult foundational concepts to grasp; those who can master it proficiently can be considered finance 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 enterprise's purpose is to obtain financing, 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 was obviously inconsistent with market conditions. Upon investigation, it was found that the cost of the main raw materials had not been 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 after working in accounting for a long time, thinking becomes rigid. In practice, old accountants may make some formalistic errors while believing they are acting according to the rules. The above example violates the matching principle of accounting and, in fact, also violates the substance over form principle.

Workplace Section#

1. Career Planning for Finance Professionals

Those entering the workforce are most concerned about their career prospects, which involves how to plan their careers. Those with plans often set goals from college, and after employment, their career planning can be detailed down to each year. Pessimists may think that accounting is a profession reliant on connections, and as they have no background, they are just happy to have a job, taking it one day at a time without planning for their future.

Everyone's path is different. I am not a life planner, so I cannot provide good advice, but I can remind you of one thing: 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 finance professionals is particularly direct and harsh! To avoid being eliminated, one can only keep striving, accumulating knowledge and experience!

(1) Education

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

(2) Qualifications

Note that 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, by definition, are merely the names of positions, ratings of that position. Although a certified public accountant is a qualification certification in the auditing industry, its social recognition is significantly 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 some value. Personally, I do not advocate finance professionals obtaining too many certificates. In 2014, the state issued a document canceling the licensing and recognition of 11 professional qualifications, including registered valuers, indicating the state's stance. For finance professionals, having one certified public accountant qualification is sufficient; more energy should be focused on accumulating work experience. Learning professional knowledge should also center around finance; obtaining too many certificates is not worth the effort.

(3) Company

Your first job should be to choose quality over quantity; try to find a reputable company, and 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. This is not to say that private enterprises are bad, but the general impression in society is that state-owned enterprises are formal and that you can learn something; then when you switch jobs, your starting point will be a bit higher. Of course, nothing is absolute; I have also seen graduates from prestigious universities working for many years in large state-owned enterprises, only to forget 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 finance position is very important. If you just entered the job market and have no choice but to work in a grassroots position, you must pay attention to accumulating knowledge in your spare time, striving 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 as someone who is eager to improve; opportunities are always given to those who are prepared.

2. Analysis and Selection of Finance Positions

(1) Cashier and Chief Financial Officer (CFO)

These are two finance positions with the greatest disparity. One is the lowest-level cash manager, requiring good professional ethics (in reality, cashiers are high-risk positions with a relatively high incidence of issues), but with the lowest technical content and the least upward mobility. The other is the highest level, the ultimate goal of career planning for finance professionals, nominally a finance position, but in reality, a senior executive of the enterprise, 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 follows fixed processes, becoming monotonous over time. Additionally, there is the possibility of being replaced by information technology, so seeking opportunities for upward mobility is the best choice.

(3) Finance 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) Finance Manager

The finance manager is actually the highest level in finance positions (the CFO should be considered a senior management position); at this level, one does not need to personally participate in specific accounting. The main functions are to provide financial analysis reports for executives, prepare budgets, control operational risks, and participate in the overall operational 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 observe," once you are familiar with your position, immediately observe and learn from the next level up, and never be complacent! In fact, finance work is not difficult; much of it is procedural, and there are specific institutional regulations on how to do it; the challenge lies in how to break through these constraints and enter the levels of communication, analysis, judgment, and decision-making.

3. Should we engage in fraudulent accounting? That is a question!

The biggest dilemma finance professionals face in the workplace is probably whether to engage in fraudulent accounting. As we step out of school and start looking for jobs, during the interview phase, many companies will ask whether we can do fraudulent accounting. So how should we respond? I believe the true intention of the company is to see how experienced you are and whether you are obedient, whether you can act according to the company's intentions. At this time, we can tell the other party that fraudulent accounting carries risks, and the primary risk is to the enterprise itself, as the ultimate responsibility for corporate fraud lies with the legal representative. Therefore, the key to fraudulent accounting is not whether to do it or not, but how to manage risks to maximize the interests of the enterprise; some fraudulent accounting you may know how to do but choose not to, because the risks do not justify the returns.

This question can be answered this way, but when it comes to the job, whether to do it or not remains a practical issue. My suggestion is to grasp the bottom line; finance accounting probably does not avoid profit adjustments. While adjusting profits, there are levels: the high level is called earnings management, the medium level is called profit planning or tax planning, and the low level is called fraudulent accounting or tax evasion. The goals are basically the same, but the means differ, and the risks borne are different. One uses standards or policies to maximize enterprise benefits, while the other resorts to any means necessary for profit, even violating laws and regulations for a small salary. The risks and returns are not proportional and are 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 fraudulent accounting to pay less tax; personally, I believe the bottom line is to avoid touching value-added tax, especially tax fraud, as it 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 this small fund come from? It is essentially the administrative revenue that should be submitted being withheld. In finance, there is a professional term called "sitting funds," which is not necessarily illegal but is a violation. What is illegal? If the money from the small fund ends up in private pockets, that is embezzlement and illegal! Absolutely do not do it!

(3) State-owned enterprises. Among all enterprises, the pressure to engage in fraudulent accounting 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 engage in fraudulent accounting or tax evasion. However, 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 public good is acceptable.

I want to emphasize again that I am not teaching you to be bad; I also do not like to sing high praises and encourage you to fight against all unreasonable systems to the end. Protecting yourself, being neither greedy nor malicious, is a bottom line that everyone in any industry should adhere to.

Skills Section

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

1. Know how to do accounts

I often call on finance personnel online 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? Should we just trust the ERP system to handle the vouchers and focus solely on financial management? The answer is certainly no! Just like a writer with great writing skills 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 financial reports are the accounting words. Imagine if finance personnel cannot recognize letters or cannot read them all, how can they write good articles and produce good reports?

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

Recently, a finance supervisor from a magazine publisher discussed their accounting treatment of selling bound periodicals with me. As we all know, 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 and send them to the paper mill for pulping, treating the income 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. The problem now is that this batch of magazines, being expired periodicals, has no book value as inventory, and in accounting, there must be a corresponding cost to match any operating revenue; so what should the cost be for this sales revenue from the bound volume?

The finance supervisor's Plan A was:

The cost of the previous year's bound volume was 1.3 million, and according to accounting standards, the previously accrued inventory impairment 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 volume would be 1.3 million, and the revenue of 1 million would be matched with a cost of 1.3 million, resulting in a gross profit of -300,000. At the same time, the asset impairment loss for the year would decrease by 1.3 million, and total profit would increase by 1 million.

Plan B was:

Do not reverse the previously accrued inventory impairment but treat it as waste sales, debiting: bank deposits 1 million; crediting: other business income 1 million; with other business expenses being 0. In this way, the current year's asset impairment loss remains unchanged, and gross profit increases by 1 million, with total profit also increasing by 1 million.

The impact of both plans on total profit is the same; the difference lies in the calculation of gross profit. Plan A reduces the current gross profit by 1.3 million, which would be a key indicator if the magazine publisher's year-end financial assessment is based on gross profit (generally, it seems that most companies focus on key indicators), so this plan is obviously unfavorable to management. On the other hand, Plan B directly increases gross profit by 1 million, which seems inconsistent with the facts and is too favorable to management.

I proposed Plan C: According to accounting standards, inventory impairment provisions are accrued based on the difference between the inventory cost and the net realizable value. Similarly, the reversal of inventory impairment provisions is also based on the disappearance of factors that previously reduced the inventory value (the bound volume has a certain market demand), requiring a reassessment of the net realizable value. Therefore, what is the net realizable value for this period? The amount of 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 costs and selling expenses related to the bound volume are relatively low; if we assume that the total cost is 200,000 (assuming the total expenses remain unchanged), then the net realizable value is 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 volume would be 800,000, matched with revenue of 1 million, resulting in a cost of 800,000 and a gross profit of 200,000. At the same time, the asset impairment loss for the year would decrease by 800,000. Total profit would remain unchanged at an increase of 1 million.

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

I use this example to illustrate that finance personnel must play a supervisory role, which cannot be separated from precise financial accounting. Financial accounting and financial management complement each other; both are indispensable!

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

Earnings management refers to finance personnel adjusting accounting profit at the request of management. Since it involves adjustment, there can be both increases and decreases. As business operations are ongoing, the increase or decrease only exists within a time frame; if we look at the entire lifecycle of the enterprise, the increase or decrease in 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 see why a company would reduce profits. The old saying goes, "When a family has surplus grain, they are not anxious." For management, the adjusted profit is their surplus, as the governing body (mainly referring to the board of directors, shareholders, or government supervisory agencies) will only raise their demands on management and never lower them, and these demands are continuous; unless you leave, the task will always follow you. If you grow profits by 20% this year, shareholders will require at least that much next year, or else you are seen as not trying hard enough or lacking ability. However, the growth in profits this year may just be due to good luck, such as landing a big order. Good luck cannot be expected every year; maintaining growth in the following year under the current market conditions would be impressive. Due to this year's 20% growth, the base increases, and if things go poorly next year, you may even face negative growth; at that point, not only will you lose your bonus, but you may also lose your position. At this time, management can only ask finance personnel to find ways to ensure that this year's profit can grow by 20%, but we can remove the factor of that big order and only reflect normal performance; the profit from that big order can be released in future years or averaged out. This way, it is easier to explain to the higher-ups. This year, profit can grow by 10%, and next year, even in a deteriorating market, we can tap potential and increase efficiency, continuing to maintain high growth and reaching 15%. Thus, shareholders are happy, and supervisory departments are also pleased; perhaps bonuses can even double!

You may ask, isn't this just cheating? Whether it is cheating depends on who you are talking about. A certain analyst from a fund often 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, implying that we should maintain super high growth, and that profit 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 quick profit and leaving; as for next year's performance decline and stock price plummeting, that would be none of his concern. Therefore, for small shareholders (who have no information and can only be the ones left holding the bag) and for major shareholders (who invest long-term and do not care about short-term stock price fluctuations), maintaining stable growth in performance is the key to maximizing 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; directly pointing out their shortcomings may cause them to lose face and could have a counterproductive effect, while changing the approach and wording can sometimes yield better results. Earnings management has a market, a demand, and is widely present in various industries; for finance personnel, especially finance managers, it is not a question of whether to do it or not, but how to do it best to maximize the interests of the enterprise and themselves.

2. Know how to write financial reports.

Financial reports are written documents that reflect a company's financial status and operational 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, collectively known as the "four statements and one note." The annual operational results and asset status of a company must ultimately be reflected through financial reports; whether for managers, shareholders, lenders, or clients, to understand the true situation of the enterprise, they must first obtain this report. Because financial reports are so important, regulatory bodies have increased 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 finance professionals should pay attention to.

Preparation of Financial Reports#

(1) Do a good job in the financial basics.

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

(2) Preparation of the Balance Sheet

It is not enough to simply fill in numbers in the report just because the necessary accounts have been completed; the items in the report generally correspond to those in the ledger, 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 finance personnel easily overlook. For example, negative accounts receivable should be recorded under advance payments, and negative accounts payable should be recorded under prepaid accounts; there are also classifications of financial assets, such as trading financial assets, available-for-sale financial assets, held-to-maturity investments, and long-term equity investments, which have major distinctions. Deferred tax assets and deferred tax liabilities are difficult points in financial accounting, and here, one must analyze and report item by item according to the requirements of tax accounting and tax laws.

Expenses recorded on the balance sheet are also a common occurrence. What are assets? Assets refer to resources that have been formed from past transactions or events, owned or controlled by the enterprise, and are expected to bring economic benefits to the enterprise. Based on this definition, some pending items that frequently appear in accounting processing, such as deferred expenses and pending property losses, are virtual assets that do not bring economic benefits to the enterprise and should be cleared and reflected in the current profit and loss when reported in the statements. Similarly, accrued expenses, being future expenditures, should also be excluded.

(3) Preparation of the Income Statement

When preparing the income statement, several key points must be noted. For example, financial expenses and government subsidies are generally processed on a cash basis; if you have time deposits, interest that has not been received cannot be accrued; similarly, if you only 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 reports at year-end to accrue investment income based on the equity ratio; income tax expenses cannot simply be calculated as taxable income multiplied by 25%, and deferred tax adjustments must also be considered. Finally, special attention must be paid to the connection between the income statement and the balance sheet; since new standards have transferred the information previously reported in the profit distribution statement to the statement of changes in equity, some finance personnel neglect the verification of the undistributed profits at the end of the income statement with the undistributed profits on the balance sheet (I have even seen some audit reports with such basic errors of unbalanced statements). There are also some small details that are not easy to discover, such as the minority interest from the previous period (in the absence of unexpected changes in the current period) plus the current period's minority interest should equal the current period's minority interest, etc.

(4) Preparation of the Cash Flow Statement

On the surface, the cash flow statement cannot directly take 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 changes in major assets on the balance sheet and the income situation of 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 emphasizes 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 Statements

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

I believe that good notes should explain as many items listed in the statements as possible; for important items with changes exceeding 10%, detailed explanations should be provided; for unimportant items with changes exceeding 30%, careful explanations should also be given. The descriptions should be simple and clear, allowing non-professionals to understand.

An important content of the notes is significant accounting policies and estimates, which are actually the foundation of report preparation, directly determining the direction of report writing, and should be valued by both the report preparer and the user.

Good accounting policies and estimates should be designed in conjunction with the enterprise's operating conditions; if the operating environment or market conditions change, 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, in a diversified group company with a main business in manufacturing and also engaged in trade, when determining the proportion of bad debt provisions for accounts receivable, it should be formulated according to industry types; accounts receivable in manufacturing generally have longer collection periods, with more stable customers, thus having a relatively low risk of bad debts; trade business has low gross margins, relies on volume, and has significant customer fluctuations, requiring quick turnover to reduce risks; once accounts exceed the due date and cannot be collected, the risk of bad debts becomes very high. Therefore, for these two different industries, the proportion of bad debt provisions for accounts receivable should be formulated according to their industry characteristics and actual situations, which is not only responsible to investors but also a management necessity.

Some finance personnel do not write notes at all; if necessary, they let accounting firms write them, which is certainly not correct. The process of writing notes is also a process of increasing understanding of the enterprise; through this process, issues can be discovered, and management suggestions can be made, which is an obligation of finance personnel.

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

Understanding Financial Reports#

Monetary funds: As an asset category, we generally focus on the authenticity of its ending figures but often overlook the occurrence amounts; we remember to reconcile bank statements, but few seriously check transaction flows. From my experience, financial supervision is crucial for asset management, and cash is the easiest to misappropriate, so checking bank transaction flows and ensuring 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 acceptances are negotiable securities that can be directly endorsed for payment or discounted, their liquidity is not inferior to that of time deposits, but the risk of problems is much greater than that of time deposits. If a relevant person holds a large acceptance bill with six months until maturity and the company's internal controls are not strong (many companies may require monthly bank reconciliations but do not check bank acceptances every month), then he/she may very well discount the acceptance bill, paying a little interest to extract cash for stock trading, lending, or even gambling; and then repay the money when it matures. One can imagine how great the risk is.

What about commercial acceptances? Standards do not require commercial acceptances to accrue bad debt provisions, and many enterprises adjust profits by converting some accounts receivable into notes receivable at year-end to reduce bad debt provisions. Since commercial acceptances do not have bank guarantees, the risk of bad debts is not fundamentally different from that of accounts receivable, and listing them alongside bank acceptances in the statements can be misleading. My suggestion is that enterprises should proactively treat commercial acceptances as accounts receivable based on the substance over form principle and apply the same accounting policies.

Other receivables: After the new standards were issued, deferred expenses, pending property losses, and other items disappeared from the statements, but this does not mean that enterprises do not set these accounts in their accounting systems; if they are not processed in a timely manner at year-end, the balances of these accounts will ultimately be reflected in other receivables; additionally, enterprises may adjust profits by recording some large expenses that have already occurred at year-end, which will also be recorded under other receivables. Therefore, if the ending balance of other receivables in the statements shows a significant increase compared to the beginning balance, investors should pay extra attention.

Accounts receivable: The biggest issue with accounts receivable is the accrual of bad debt provisions; the aging analysis of accounts receivable is a challenge in finance work; if records are not kept well in daily work, it will be difficult to analyze accurately at year-end. Some finance personnel may 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 operational assessment of business 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 very high.

Inventory: The risk of inventory lies in how much of the ending inventory balance reported is real. As mentioned earlier, simple and crude fraudulent accounting may adjust current profits by over- or under-transferring inventory costs; a more sophisticated approach may manipulate the composition of inventory costs, allocating a large amount of period expenses as manufacturing expenses into inventory costs. Although certain audit 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 age of the inventory. 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. The age of the inventory is also important; generally, long-aged raw materials are acceptable, as the enterprise may be stockpiling for appreciation. However, long-aged finished goods should be particularly scrutinized, raising significant questions about their value. Here, the issue of accruing impairment provisions arises; since inventory impairment provisions are generally accrued based on the comparison of the net realizable value of inventory (the net realizable value refers to the estimated selling price minus the estimated costs to complete and the estimated selling expenses and related taxes) and the book value of inventory, estimating the net realizable value is inherently challenging. If the market is not transparent or changes significantly, it becomes even harder to estimate. Therefore, many finance personnel do not accrue impairment provisions at year-end, or intentionally overestimate or underestimate them to adjust profits. Since provisions can be reversed after being accrued, inventory impairment provisions have become an important means for some finance personnel to manipulate profits.

Fixed assets, intangible assets, and construction in progress: Not accruing the required depreciation, not amortizing what should be amortized, and not converting what should be converted into fixed assets are all common initial tactics used in financial fraud. While these methods may be somewhat basic, they are still effective, so 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 be depreciated at an accelerated rate, and there are issues with capitalizing versus expensing intangible assets, while construction in progress can delay conversion to fixed assets, thus reducing depreciation. This is also a point that requires special attention in accounting processing.

Government subsidies: Government subsidies are relatively easy to have issues with, as 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 outset. Some enterprises, for convenience, do not distinguish between asset-related and income-related subsidies when accounting for government subsidies, directly including subsidies related to projects as current income. There are also many cases where enterprises prematurely recognize income before receiving subsidies or fail to recognize them 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 adopts a cash basis, where all cash inflows and outflows are clear, making it difficult for finance personnel to manipulate. Therefore, the cash flow statement often reflects the true operational situation of the enterprise in certain aspects.

Many enterprises prepare cash flow statements quite casually, as the balance sheet and income statement mainly draw numbers from the accounting system; if cash accounts do not have auxiliary accounting done regularly, finance 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. However, judging whether the cash flow statement is authentic is quite simple; focus on 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 accurate. 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 other operating cash inflows received; many people, when unable to balance the cash flow statement, will push the discrepancies into these two items; if these two items show large figures (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 wage levels; by dividing the cash flow statement's payments to employees and the cash paid for employees by the number of employees, one can roughly calculate the average wage level of the enterprise. Of course, this figure reflects the total cost of the enterprise's personnel, including the company's burden of social insurance and housing fund; the actual amount employees take home is certainly less. Some enterprises may want to hide profits and accrue some payable employee compensation at year-end; comparing this 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 accrue part of the year-end bonuses to be paid next year, which is normal).

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

In summary, the success or failure of a company's operations must ultimately be reflected through financial reports; only by preparing good financial reports and utilizing them well can we understand the operational essence reflected in the reports, thereby ultimately providing valuable information for operational managers and investors.

3. Know how to write financial analysis.

What does qualified financial analysis look like? Typically, we might think that the more detailed the text and the more indicators included, the clearer the expression, and the more satisfied the leadership 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, then the more detailed, the better, as they are outsiders and do not understand your situation; if it is for internal management, it does not necessarily need to be lengthy—leaders are busy, and they are not professionals; if you use too many technical terms, it will be tiring to write and tiring for them to read, so focusing on key points is crucial. Second, it must be related to the business; financial analysis should analyze the core of the business; if it is detached from the business, it is detached from reality. A few dry numbers may look impressive on the surface but have no value.

Therefore, relying solely on writing skills and proficiently using indicators will not yield qualified financial analysis; the most important thing is always to analyze the authenticity of the numbers. Keeping accounts timely and ensuring that internal controls have no serious flaws will yield a financial analysis report that, even if it consists of just the three main statements, is far better than one that is lengthy but based on false numbers.

4. Know how to engage in financial management.

In my understanding, financial management is about finance and management: finance is a behavior, while management is a goal; financial behavior must 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 interacting with other departments. The finance department pays more attention to supervising other departments, requiring compliance and reasonableness in reimbursements; for the business department, 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 only receives information and converts 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 targeting supervisory functions, allowing accounting to serve management—accounting is a means, while management is the goal.

Having said so much, what exactly does financial management cover? In my view, any management activities 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 finance, so you can only manage things 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 closure: "making money!" If you observe closely, you will find that although management methods vary across industries, the ultimate goal is the same: to put the money in hand to work and exchange it for more money. Therefore, strengthening accounts receivable management is to collect money, strengthening inventory management, strengthening fixed asset management, and strengthening intangible asset management, etc., are all 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; consolidating the funds of 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 due to inadequate supervision. With too many subsidiaries, the quality of personnel varies; even with systems in place, it is difficult to execute them 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, let alone money. We can negotiate with banks to provide agreed deposit rates; we can sign strategic cooperation agreements with banks to secure larger credit limits and more convenient services; we can talk to trust companies to buy some trust financial products, sometimes achieving returns above 10%, which may even be higher than the gross margin of the company's main business; we can also establish a finance company within the group to adjust funds, compensating for shortages and reducing the cost of fund usage. In short, if you manage money well, everything else will be easier!

(2) Manage inventory. On one hand, this involves accounting management, primarily focusing on the aggregation of costs, with particular attention to manufacturing expenses, which involve capitalizing period expenses to adjust profits; it is advisable to conduct financial analysis of manufacturing expenses while simplifying the detailed items of manufacturing expenses; categories like business entertainment expenses and office expenses should not be set. Additionally, the age of inventory must be analyzed; inventory older than one year must be impaired unless there is evidence to prove appreciation, as long inventory ages will impact performance, achieving the goal of activating assets.

(3) Manage investments. It is best not to allow subordinate units to have the authority to invest; 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, it becomes unmanageable. How to invest could fill another book, so I will not elaborate here. It is worth noting that for simple investment management, finance should have a larger say, but for strategic investments, such as establishing or acquiring a company or entering a new industry, finance 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 parties.

(4) Manage receivables. The focus of managing receivables is on credit granting, which refers to granting credit to customers. Finance 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 granting 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, possibly establishing a dedicated procurement company and a professional sales company; however, this approach also has issues, as you cannot guarantee that the dedicated personnel of the procurement or sales company will not have problems. It is advisable to involve production units at least to have a say, creating a system of checks and balances.

5. Utilize information technology.

Here, I want to emphasize the word "utilize." We do not require everyone to know everything or be proficient in everything, but in today's era, information technology is an unavoidable issue for any position, especially for finance positions, where information technology has clearly replaced the functions of accounting. Through network technology, an accountant at an accounting firm can handle the accounts of 150 to 300 companies, meaning that 150 to 300 accounting positions have disappeared. This is faster than robots replacing industrial workers! This is the power of technological progress!

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 uncertain whether it will remain so 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 process, mutually controlling and supervising each other, which is more effective and convenient than traditional accounting supervision. For example, expense reimbursement systems can monitor expense spending in real-time through the network, and reimbursement personnel no longer need to find people for signatures or seek accountants to review documents; cost accounting is no longer solely the responsibility of the finance department, as ERP systems handle everything, and the finance department only needs to confirm unless there is conclusive evidence, in which case they do not need to change any figures. Therefore, in future enterprises, the position of the information technology department will be very important. Since IT industry elites often specialize in one area, the current information management departments are more focused on logistical work; if more management talents in internal control join the information department, it will be easy to assess whether the system is effectively running in real-time and to periodically or non-periodically upgrade and modify the system based on operational directions and management ideas, exercising control functions.

So, does this mean that finance professionals have no future? If you are still a traditional accountant and do not transform, your career will indeed be somewhat bleak; however, if you are a versatile finance elite, there are still many opportunities for you. Observant individuals will notice that finance 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 options, and equity incentives are all related to finance. In investment management, from formulating investment strategies to achieving investment goals, finance 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, while finance must verify whether they have truly 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 finance work is uninteresting, as long as you have the skills, transitioning is a matter of minutes. It has been statistically shown that among the CEOs of the world's top 500 companies, the majority come from sales backgrounds, followed by those from finance backgrounds. The information department mentioned earlier may also be led by finance professionals 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 control—note, it is not risk prevention, as risks are everywhere, and prevention is not possible; there is no business without risk.

First, let’s talk about resource allocation. For an ambitious enterprise, resources are always insufficient, so reasonable allocation is crucial. On a large scale, this involves introducing strategic investments, issuing stocks or bonds; on a smaller scale, this 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 over the period). At the same time, internal controls must be effective, and risks must be controllable. Therefore, the primary task of finance professionals is no longer about increasing revenue or cutting costs (increasing revenue was never a finance task). The cash-burning war of ride-hailing apps in 2014 is something traditional finance professionals could not have imagined; there were no revenues, only expenditures—how to cut costs? At this point, ensuring cash flow becomes the primary task of finance.

(3) Centralize rather than decentralize.

I often hear company leaders say: "Finance is 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 the core. The finance core is not possible, but finance professionals should not belittle themselves. One of the biggest characteristics of the information age is information explosion, with information coming in quickly and abundantly. In the past, accountants had to sit in the office waiting for documents; they could only do calculations and final accounts once the documents arrived. When something went wrong, accountants often said, "How would I know if the business does not provide information!" Now it is different; information technology provides finance professionals with a powerful database, allowing us to reach into the business front end at any time, analyzing and mining useful information in real-time. The reason for decentralization in the past was due to multiple management levels and low efficiency; now, with comprehensive business sharing and information sharing, decentralization is counterproductive to standardization. Therefore, centralized control is the future direction, and finance professionals should extend their reach to the business front end, analyze data, and mine information; mainly to extract useful business information to serve centralized control.

(4) Maintain 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 finance professionals should 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 pace with business development; accounting fundamentally serves business (many accountants do not acknowledge this viewpoint; they believe 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 specify, then this business cannot be conducted. Theoretical construction is not our ordinary people's concern; 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 integrate into one. In the past and present, the finance department provided financial data, while the business department provided business information, with the information being independent. When a company needs to publish 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; finance personnel will extract non-financial information, such as business information, market information, etc., because financial information originates from business information, and business information also contains a lot of financial information; the boundaries between the two will become 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 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 commit fraud! For readers with such needs, I must remind you: fraudulent accounting is illegal, against regulations, and against rules; more importantly, companies that engage in fraudulent accounting are often small and unregulated, and working in such companies does not offer much of a future.

In life, many people equate financial experts with fraud experts, which is certainly a mistaken viewpoint. The excellence of finance professionals should lie in management and in creating value for the enterprise, not in playing petty tricks. However, for beginners, it is still necessary to understand where fraud occurs and how to detect it. In fact, there are levels of fraudulent accounting: basic, intermediate, and advanced. Basic fraudulent accounting is usually simple and crude, clearly being an expense but misclassified as a cost; clearly, goods have been sold, yet a false inventory report is created to show they are still in stock. Intermediate fraudulent accounting involves communicating with leadership and the business side before doing the accounting, clarifying the goal: whether to commit fraud to meet upper management's tasks or to evade taxes. For tax evasion, one must pay attention to which taxes to evade, what invoices to issue, and even if cash can be received, one should offer discounts to ensure cash payments; expenditures should also be handled similarly, using personal accounts and creating off-the-books transactions, etc. Advanced fraudulent accounting is not something ordinary people can discern; it usually occurs in large groups or even multinational corporations, with a dedicated team managing it, with specialists researching various countries' tax policies, and operations starting from the establishment of a business type within a company; even if local governments discover it, they are often helpless because they are exploiting loopholes in policies, and the blame can only be placed on poorly defined policies. A recent representative case is Starbucks's "tax evasion" in the UK. The statutory corporate income tax rate for multinational and local companies in the UK is 30%. Starbucks uses legal tax avoidance strategies, having generated £3 billion in sales over 14 years in the UK while only paying £8.6 million in income tax, with the tax amount being less than 1% of sales. The methods are not complex; first, register a company in a low-tax country, then charge high fees for intellectual property to the UK company to increase period expenses; then, use the method of buying low and selling high to inflate the price of coffee beans sold to the UK company, increasing costs; Starbucks headquarters even loans money to the UK company at high interest rates to increase financial expenses. With several methods in place, it becomes difficult for the UK company to avoid losses! What seems simple relies on a thorough understanding of the laws and policies of various countries, which requires a significant amount of effort to accumulate.

Therefore, large companies generally do not engage in fraudulent accounting; they engage in earnings management. What is earnings management? Earnings management refers to the behavior of management controlling or adjusting the accounting profit reported externally based on compliance with accounting standards (see, their premise is compliance) to maximize their own interests. In simple terms, it means adjusting profits. We can also understand it as a form of reasonable tax avoidance—both have a legal or compliant facade, and the purpose is the same: to manipulate the interests of the entity to maximize them. If someone profits, someone else must lose; reasonable tax avoidance may lead to a loss of state revenue, while earnings management may cause uninformed investors to misjudge reports, resulting in losses.

At first glance, earnings management does not seem like a good thing; however, it can also be viewed as finance personnel's subjective understanding of enterprise operational information.

For the purpose of maximizing interests, using various means to avoid taxes has long been an open secret among small, medium, and large enterprises (do not think that foreign or multinational companies do not avoid taxes; they simply have more professionals and a larger scale, allowing them to play more sophisticated games), and similarly, earnings management is also a common practice in external reporting. What does it mean to be professional? Can an accountant who does not know how to manage earnings claim to be professional? Sophisticated earnings management should look like this: when faced with numerous professionals questioning the authenticity of information disclosure, you remain unafraid, citing standards and holding firm, ultimately causing the experts to retreat quietly. The next day, the latest accounting standard interpretation is released...

Earnings management is a broad topic; around this topic, writing ten books would not be excessive. Here, we will discuss how earnings management is reflected in reports, particularly focusing on non-recurring gains and losses.

What are non-recurring gains and losses? Let's look at the definition according to the China Securities Regulatory Commission's "Interpretative Announcement No. 1 on Information Disclosure for Companies Issuing Securities" (2008): non-recurring gains and losses refer to gains and losses arising from transactions and events that are not directly related to the company's normal business operations, and although they may be related to normal business operations, their special nature and occasionality affect the report users' normal judgment of the company's operational performance and profitability. There are three key points here: "irrelevance to normal business operations," "government subsidies recognized in the current period's gains and losses, but closely related to the company's normal business operations, in accordance with national policy provisions, and continuously enjoyed according to certain standards," and "significance of amount." Upon careful examination, does this not resemble the concept of non-operating income and expenses? In fact, the contents of the two do overlap to some extent, but the scope of the former is much broader.

To determine whether a project constitutes non-recurring gains and losses, one must first see whether it is related to normal business operations—note that the judgment of the scope of normal business operations is crucial; transactions within the scope of the business license are certainly fine, while others rely on judgment, and "occasionality" is an important criterion for determining whether something is non-recurring. Another factor to consider is whether the gains and losses can become a predictable and stable source of income in the foreseeable future, thus providing a basis for report users to predict the company's future earnings situation. For example, the export tax rebate income of export enterprises is expected to be enjoyed long-term in the foreseeable future, so this income is considered recurring, while certain local preferential policies, such as income tax reductions for enterprises in development zones, are generally temporary or time-limited, which can be judged as non-recurring gains and losses.

In summary, projects that are expected not to occur again in the future and have an occasional nature can be judged as non-recurring gains and losses.

Having said that, if due to subjective or objective reasons, the judgment is wrong, what should be done? This is where the CSRC shows its consideration for the public. The "Interpretative Announcement No. 1 on Information Disclosure for Companies Issuing Securities" details 21 items of non-recurring gains and losses, covering almost everything imaginable; if something is not listed, there are still others. The purpose of issuing these policies is solely to separate non-recurring gains and losses from the net profit of enterprises, thus restoring the true operational performance of listed companies and encouraging them to focus on their main businesses and enhance their core competitiveness. Below, we will list these detailed items one by one to see how non-recurring gains and losses impact the current profits of enterprises.

(1) Gains and losses from the disposal of non-current assets.

Non-current assets mainly refer to fixed assets and intangible assets. This can be considered one of the best means to adjust profits—who does not have some fixed assets? If it is real estate, that is even better; if the property is old, that is even more advantageous. Over the past decade, China's real estate industry has developed rapidly, with property values increasing tenfold being normal; however, financial accounting still relies on historical costs, and the depreciation taken is minimal. This year, if profits are insufficient, no problem—just find a few properties and sell them at market prices, and profits will emerge. You may wonder how to retain profits for next year if the properties are sold this year. It is actually quite easy; just slow down the transfer procedures and cross the fiscal year.

If there are no properties or if there are properties but you do not want to sell them, then you can only manipulate the machinery and equipment. For example, suppose a company has equipment valued at 100 million, with 50 million in depreciation taken; it can sell it to a friendly company (or even a related company) for 60 million, generating 10 million in profits. The key is that you still need to use the equipment, so sign a financing lease agreement with the other company (if you want to be discreet, you can sign with another company), and rent the equipment back, allowing the extra 10 million in profits to be returned over 3 to 5 years, thus forming a perfect closed loop.

(2) Unauthorized approvals, or lack of formal approval documents, or occasional tax refunds or reductions.

As we all know, in recent years, local governments have devised many methods to help enterprises under their jurisdiction go public and demonstrate performance, with common tactics including sudden subsidies; direct cash payments sometimes face budgetary hurdles, while tax refunds or reductions are often the most commonly used methods. A friend of a business owner once said that the local government proposed that as long as they could go public, they would wipe out all the taxes owed since the company's establishment. The profits generated from this are easy to imagine.

(3) Government subsidies recognized in the current period's gains and losses, but closely related to the company's normal business operations, in accordance with national policy provisions, and continuously enjoyed according to certain standards.

Similar to the above, government subsidies are classified as non-operating income in accounting, which is a standard occasional event. It is important to note the exceptions; not all government subsidies are considered non-recurring gains and losses, which differs from accounting treatment.

For example, Company A is a software development enterprise whose main business is software development. According to the "Notice on Value-Added Tax Policies for Software Products" (Cai Shui [2011] No. 100), general VAT taxpayers selling their self-developed software products or localizing imported software products for external sales are subject to a 17% VAT