Accounting in Israel is similar to accounting in Europe and the United States in many aspects. Nevertheless, due to a variety of reasons, in some aspects accounting in Israel differs from accounting both in Europe and in the United States.
The field of accounting, often referred to as “the language of business”, encompasses a broad range of sub-specialties and disciplines. Accounting includes disciplines such as bookkeeping and financial accounting, auditing, financial statement analysis, managerial, cost and tax accounting etc. Accounting related functions are varied, depending on the type of firm or organization in which these functions operate in and their different needs. The main purpose of accounting is to record, measure, interpret and communicate financial data.
Over the years, many key global economic processes and recent events have confirmed that accounting is a key factor in global economic growth and development. Investors, companies, governments and other key global economic players rely on financial accounting and independent auditing to assure the reliability and accuracy of financial statements on which they base their decisions and economic activity. There can be no doubt that at the heart of all financial accounting should be a proper, reliable and accurate system of bookkeeping which will assure that proper financial statements are produced. While financial accounting is used by those outside of a company or organization, managerial accounting is concerned with the use of financial information by those inside a company or organization. Managers on different levels use managerial accounting in their decision making process which is usually an internal one.
Auditing constitutes one of the main components of accounting in Israel. Accounting in the United States emphasizes the bookkeeping aspects of an accountants’ function. Whilst still being considered a component of the accounting field, auditing in the United States is well distinguished from other financial accounting disciplines in a number of ways, of which independence should be considered the most important one.
In the United States accounting is mainly associated with the responsibility for processing and recording companies’ financial transactions and presenting financial statements. Auditing, on the other hand, consolidates the actions which are taken by an independent auditor towards obtaining reasonable assurance as to whether those financial statements are free of material misstatement. An accountant who focuses on the auditing aspects of his function considers a company and its financial statements as a whole, as opposed to a certain part of the company’s financial statements.
The other substantial difference between auditing and financial accounting is in fields of focus and interest. An auditor is concerned with many aspects of a company’s activities as well as its potential activity, while an accountant / bookkeeper focuses on maintaining a company’s proper day to day routine transactions recording.
In the United States auditors are usually part of an audit team, which is independent and therefore is not connected to the company’s accounting staff.
Certified Accountants in Israel
Accounting in Israel, however, has taken part in both of these important tasks, being involved (under certain limitations derived from rules of independence), not only in auditing, but also in bookkeeping and financial accounting for their private clients and, until recently, assisting in preparing and editing financial statements for their public clients.
Taking into consideration several clarifications published by the Israel Securities Authority regarding its position in respect of the external auditor’s involvement in preparing and editing clients’ financial statements, we shall expect a significant decrease in such involvement in the near future as a response to those clarifications. These functions, if not performed internally by the companies, will probably be transferred to the external accountants who do not constitute a part of the audit team and will play the role of an external advisor in the accounting field.
This recent development opens new horizons for accounting in Israel, giving an opportunity for small and medium accounting firms to improve their professional level in the financial accounting field and to be involved in providing additional services for large public companies which were until now provided almost exclusively by the external auditors of those public companies.