In Morocco, accounting is a standardized process that consists of recording the financial flows of a company in a chronological order. This discipline serves as the foundation for producing the company’s financial statements.
Definition of Accounting
In Morocco, accounting is governed by the General Code of Accounting Standards (CGNC – Code Général de Normalisation Comptable)
The CGNC in Morocco defines accounting as a discipline that :
- First, collects and totalizes information relating to the company’s financial transactions;
- Then, presents this information as accounting entries;
- Finally, synthesizes this information in the form of financial statements.
Accounting entries are recorded according to specific standards. These standards are as follows:
- First, every accounting entry must follow the “double-entry accounting system”. Each entry made on the credit side must have a corresponding entry on the debit side;
- Second, entries must respect the accounts’ numbers as defined by the accounting standard;
- Finally, entries are recorded in monetary units.
Accounting regulations in Morocco
Accounting in Morocco must follow the standards of the CGNC.
This code sets the following general principles:
- First, accounting entries must be recorded;
- Second, financial statements must be established;
- Finally, companies must respect the Accounting Principles.
What are the Accounting Principles in Morocco?
The CGNC has two main objectives:
- On the one hand, to serve as basis for information and for company management;
- On the other hand, to provide a true and fair view of the company to accounts’ users, both private and public.
CNGC provides for 7 Accounting Principles as follows:
- Continuity of operations;
- Consistency of methods;
- Historical costs;
- Separation of accounting periods;
- Significant importance.
1- Principle of continuity of operations
According to the principle of continuity of operations, the company must establish its accounts in the perspective of a continuation of its activity. In the absence of continuity, the company must present its accounts in liquidation value.
2- Principle of consistency of methods
The company must apply, for the recording of entries and the establishment of accounts, the same valuation and presentation rules, from one financial year to the next.
3- Principle of historical cost
The entry value of an item recorded in the accounts remains unchanged regardless of subsequent changes in purchasing power.
4- Principle of separation of accounting periods
Accounting regulations separate the life of a company into accounting periods. The company must record expenses and income in the year in which they are incurred.
5- Principle of caution
According to the principle of caution, when a company detects an uncertainty that could lead to :
- First, an increase in expenses;
- or, alternatively, a decrease in revenue for the year.
It must take them into account, particularly in the calculation of the result for that year.
6- Principle of clarity
According to the principle of clarity:
- First, the company must record information:
- under the right accounts;
- with accurate designation;
- and without netting entries;
- Second, the company must value assets and liabilities separately;
- Finally, the company must establish the financial statements without netting the different items.
7- Principle of significant importance
The company must disclose in its financial statements all items whose significance may affect valuations and decisions.
Who can manage Accounting?
A company can choose to either do its accounting internally, or outsource it to an accounting firm.
What is the role of accounting?
Accounting is a management tool. In fact, the financial statements provide a summary of the company’s financial situation.
In addition, accounting plays a role in informing partners (third parties). Indeed, third parties (banks, shareholders, employees, …) are interested in the progress of the activity and its financial health. Accounting covers this need.
In short, accounting is an essential tool for financial information.
The objective of an accounting system is to:
- First, ensure that transactions are recorded according to the rules in force;
- Then, provide the principles of summarizing said transactions;
- Finally, produce standards-based statements that third parties can read and analyze to draw conclusions.
Accounting system in Morocco
The following accounting books are mandatory for every company:
- First, an accounting procedure manual. Its role is to describe:
- The accounting organization;
- Accounting procedures;
- General accounting principles.
- Second, the company must keep a General Journal. Indeed, it records the daily transactions in order of date.
- Third, the General Ledger which groups entries by account.
- Fourth, the Trial Balance which lists the balances of all accounts.
- Finally, the financial statements that we cover in the next section.
- First, the balance sheet which reports the company’s assets, liabilities, and equity at a specific date.
- Second, the income statement (also called profit and loss statement) which provides information on the net income.
- Third, the cashflow statement which provides information on cash inputs and outputs.
- Finally, the notes to the financial statements provide general information, in particular on the accounting principles and procedures.