Business commercial knowledge (BCK) is so vast that it is difficult to even list down each and every aspect of it. It is also dynamic because its components keep changing. Thus, it is extremely important to understand BCK. Professionals like chartered accountants must understand it because they also play a role in decision making.
Chartered Accountants and BCK
For example, the nature of each business will determine things like its profitability, inventory, expenses, capital requirement, etc. CAs will be able to advise their clients better only if they also understand such concepts well themselves.
Importance of BCK
Business commercial knowledge is very important because of the following reasons.
1. Required in Daily Activities
BCK involves a large part of daily work for professionals like chartered accountants. They are expected to provide sound advice to their clients for increasing the profitability of their businesses.
Even other activities like accounting and auditing require business commercial knowledge. This can only happen efficiently if CAs are aware of the components of BCK that influence each business.
2. Each Business is Peculiar
Business commercial knowledge directly or indirectly influences all business and commercial ventures. These components of BCK are so vast and dynamic that we have to constantly keep updating our understanding of them.
Furthermore, there are so many aspects to BCK that not all businesses will have all of them in it. Each business has peculiar features that influence its functioning and profitability. Thus, CAs must be able to identify such peculiar aspects and work accordingly.
Take the example of an automobile company. While determining its costs, incomes, expenses, profits and tax liabilities, a CA will have to be aware of many things.
For example, the nature of its business (manufacturing), its inventory requirements (to determine costs), its field of work and geographical location (to determine local and central taxes payable), etc.
The same components will not apply for, say, educational institutes like schools. Here, CAs will have to understand some peculiar components of that industry to perform their functions.
3. Importance in Auditing
Auditing involves a large part of regular work for chartered accountants. An efficient audit covers in its scope everything that presents an accurate picture of the business’s activities. In order to achieve this, CAs must ensure that they understand all components of BCK that influence the scope of their audit.
Solved Example on BCK
Question: Imagine yourself to be a chartered accountant handling accounts of a college. List down components of business commercial knowledge you have to be aware of and then state reasons why they are so important.
Answer: Firstly, a college being an educational institution will have peculiar features that other forms of business will not possess. Here are a few such features:
- Activity: Provision of service (teaching)
- The geographical scope of activity: Limited to the exact place it is situated in
- Ownership: Owned by a trust or individual or government
- Stakeholders: Management, employees, teachers, students, government, society at large
- Functions performed: Teaching, accounting, human resource and management
- Underlying disciplines: Laws, management and economics
- Capital assets: land, buildings, buses, machines
Educational institutions have peculiar features that, say, a manufacturing company will not have. A chartered accountant’s thorough understanding of such features as mentioned above is important because:
- It will help in advising the college well
- Accounts will be maintained as per statutory requirements
- All local and central laws applicable to colleges will be followed
- It will help the college in taking policy decisions
- An accurate picture of the college’s profitability will emerge
- Auditing work will be more efficient
Thus, this concludes our discussion on the topic importance of BCK.