Difference Between Accountant and Actuary
The key difference between accountant and actuary is that accountants are responsible for the accounting of the financial transactions that have occurred in the past by the company, whereas, the actuaries are responsible for predicting the financial impact of the different events which may occur or may not occur by the company in the future.
The accountant exists to simplify the whole process of accounting while the actuary is to determine the risks of the insurance company and work with underwriters to derive the rates. Both works with the same set of information, generate statistics and handle financial data, but each has a different purpose and performs different business functions.
- Actuaries are mostly employed in the insurance industry or sometimes in the investment banks, and they deal primarily with risk. It provides a statistical probability of an event to occur in the future and how to reduce any likely financial impact of adverse events as advice. They also advise on the premiums with their calculations on how much to charge and to ensure which customers.
- Accountants, on the other hand, handle monetary transactions by recording financial informationFinancial InformationFinancial Information refers to the summarized data of monetary transactions that is helpful to investors in understanding company’s profitability, their assets, and growth prospects. Financial Data about individuals like past Months Bank Statement, Tax return receipts helps banks to understand customer’s credit quality, repayment capacity etc. while working with individuals or organizations. Auditing accounts, analyzing financial reports, acting as a consultant, preparing tax returns on a wide range of financial matters. Their duties are broader than that of an actuary.
Let us now look at each one of them in detail –
Who is an Accountant?
- An accountant may get involved in issuing or receiving invoices which can involve recording account receivable and account payableAccount Receivable And Account PayableWhile Accounts Receivable is the capital amount that the clients/customers owe to the business, Accounts Payable is the capital amount that the business owes to its suppliers. . They can also issue recording an expense or an income that records outflow and inflow of cash.
- At the end of a given period, they involve in the reconciliation of the bank statements. Several reports are produced by an accountant, including all kinds of financial statementsKinds Of Financial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels. i.e., balance sheet, statement of cash flowsStatement Of Cash FlowsStatement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities., and income statement. They also issue management reports, which may include sales, cost variance, and overtime analysis.
- Accountants sometimes issue tax reports in regard to income tax, sales taxSales TaxThe government levies sales tax on the consumption of various goods and services as the percentage added to the product and services from which the government earns revenue and does the company's welfare. In the United States, 38 different states have different taxes, from Alaska (1.76%) to Tennessee (9.45%)., property tax.
- Within the scope of a business, an accountant may also be involved in the creation of several processes, for example, shipments to customers, receipts from suppliers, and cash receiptsCash ReceiptsA cash receipt is a small document that works as evidence that the amount of cash received during a transaction involves transferring cash or cash equivalent. The original copy of this receipt is given to the customer, while the seller keeps the other copy for accounting purposes. from customers.
- A person can specialize in chartered accountancy, cost accountancyCost AccountancyCost accounting is a defined stream of managerial accounting used for ascertaining the overall cost of production. It measures, records and analyzes both fixed and variable costs for this purpose., and become tax accountants, payroll clerks, general ledger accountants, or inventory accountants. Certified Public Accountant is the most prestigious certification an accountantAccountantAn accountant is a finance professional responsible for recording business transactions on behalf of a firm, reporting the firm’s performance and issuing financial statements. Thus, an accountant plays an important role whether it is a small domestic entity or a large multinational company. may choose to pursue. Before a person can audit the books of a company, a CPA license is mandatory.
Who is an Actuary?
- Let’s now understand the role of an actuary, a person who is a business professional, managing and assessing the risks of a financial venture like of risky investments and insurance policies is known as an actuary.
- They are experts in assessing the financial riskFinancial RiskFinancial risk refers to the risk of losing funds and assets with the possibility of not being able to pay off the debt taken from creditors, banks and financial institutions. A firm may face this due to incompetent business decisions and practices, eventually leading to bankruptcy. of a situation using financial theory, probability, and computer science. To determine the relative risk of various decisions, private and public institutions rely heavily on actuarial science before actuaries are allowed to practice they are tested and trained extensively.
- Insurance companies and a lot of investment banks appoint several actuaries on a full-time basis. Actuarial science is basically applicable in a business where there is uncertainty or risks. Currently, actuarial scienceActuarial ScienceActuarial Science evaluates the various risks associated with the field of finance. The use of mathematics and statistics, which is its prime focus, is used to analyze the uncertainty of future events and their financial implications. is one of the fastest-growing and better-paying segments in the United States.
- Actuaries are actually employed to examine the risks of investments from the financial aspect. Actuaries combine the analytical tools specific to a market and their ability to statistically measure probability to get the best possible results. The fluctuations of financial marketsFinancial MarketsThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces. are not very easily predicted; hence an actuarial must acquire deep knowledge of the financial world.
- They are hired as retainersRetainersA retainer is an arrangement between the firm and service provider wherein the service provider is paid an advance for services that will likely be needed in future. Retainers are commonly used in areas like law, accounting, HR. by most of the investment banks and insurance companies and as consulting actuaries for businesses making big one time decisions.
These were the roles of Accountant and Actuary.
Accountant vs. Actuary Infographics
Why the Accountant and Actuary are important is the question that matters overtime in recent years.
- Being an accountant these days does not mean being geeky but being able to communicate and cooperate with other people as well as having the right skills like problem-solving and detecting the errors. Accountants analyze revenueRevenueRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions. and expenses, and recommend appropriate budgets, resolve discrepancies which require some judgment skills and, at the same time, maintain financial databases and manual filing systems.
- While being an actuary requires mathematical knowledge, computer skills, and use of probability and statistical techniques. Actuaries work specifically within the insurance industry, providing companies with statistical probabilities of future occurrences and handle data related to risk. They typically focus on losses associated with illnesses, accidents, and natural disasters and assist insurance companies in determining what premiums and coverage the client should be charged.
Both are important in their own ways in the financial world. However, the roles and duties are broader for an accountant, and they are quite specific for an actuary. One cannot replace the other requires a different set of skills and qualifications to become successful in their own genres.
- Creating financial solutions
- Analysis and risk management
- Developing research data
- Create strategies for the benefit of the policyholders.
This has been a guide to Accountant vs. Actuary. Here we also discuss the top difference between Accountant and Actuary along with infographics and comparison table. You may also have a look at the following articles –