Current Issues In Accounting Assignment

Introduction - Current Issues In Accounting

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Financial statements of the organisation, accounts of the organisation and other financial reports of the organisation are created, prepared and disclosed by the management and the employees of the organisation. Sometimes for taking undue advantage of a situation, the management or the employees of the company manipulate the accounts, financial statements or other financial reports of the organisation in such a manner that it gives an unfair advantage to the organisation. There are many examples of manipulation such as window dressing and creative accounting. The financial statements of the company shall be following the prevailing standards for conducting the accounting of the company and the prevailing standards for reporting the financial performance of the company (Handoyo and Maulana 2019). For ensuring that the financial statements do not contain any manipulation, the audit is conducted by an independent person. The manipulation is of many kinds and sometimes the management of the organisation is successful in hiding the manipulations from the auditor, this situation can be said as ‘Audit Failure. This essay will assess and analyse the potential causes of the audit failure so that the audits can be more effective and the manipulations can be caught by the auditor (Christopher 2019).

Analysis of Audit failure and its causes

The audit can be defined as the examination of the financial information of the company, which is being done by a person who has no interest of any nature in the company and who is well equipped with the knowledge of the field of accounting and finance. The main objective of that person is to provide information about the trueness and fairness of the financial statements prepared by the management of the company. Such an independent person who conducts the audit is called ad the auditor. The definition of audit states that the main and primary objective of the audit is to provide a view on the authenticity of the financial statements of the company and not to detect frauds and errors in the financial records of the company (Sahoo et al. 2021).

Sometimes the company is not performing good in its operations and there is a situation of cash crunch the company, the company manipulates the accounts company and make the performance of the company good on paper, this helps the company to get funds from the market in the form of debt or capital and the situation of cash crunch is eliminated. But the auditor shall conduct the audit very exhaustively and this manipulation can be caught. Detecting the manipulation is not an easy task. The manipulation is generally done by the top management of the company, the top management of the company is generally very knowledgeable, well educated and well skilled. They can use the loopholes of the audit scope and conduct the manipulations in the system (Thomas 2002).

The situation of audit failure occurs when the circumstances of the situation do not allow the auditor to examine the books independently as he has some interest in the company or he has some pressure on him, or in the situation when the audit plan, procedures and policies of the audit prepared by the auditor are not able to detect the manipulations in the financial statements of the company. This happens because the management of the company who prepares the financial statements of the company knows the loopholes therefore, can easily manipulate the accounts, and the manipulation is done in such a manner that it is very difficult to be detected (MohammadRezaei et al. 2018).

The excuse that the manipulation is done so precisely by the management, and due to this the auditor did not detect the manipulation is not acceptable by the authorities. The auditor must perform the audit in a manner through which every manipulation in the accounts of the company and therefore when the manipulation is done and it is not detected by the auditor, the situation is termed as "Audit Failure". There are many reasons for the audit failure. The potential causes for the audit risk shall be analysed by the auditor in the starting stage of the audit or the planning stage of the audit.

The first potential cause for audit failure can be defined as the chances of human error. Human error is caused due to the inefficiency or negligence of the audit staff or the auditor himself. If the auditor or any audit staff is not able to conduct the audit properly or conduct the audit irresponsibly, the chances or probability of the audit failure rises with a high degree of risk. E.g., Jeffery Bacsik who was the partner in the Deloitte relied on the hearsay pieces of evidence provided by the management and did not try to collect the conclusive evidence in the Perry Drug Case (Cullinan, 2004).

An ineffective plan for the audit prepared by the auditor is also a potential cause for the failure of the audit. The audit plan is developed by the auditor at the initial stage, if the plan designed by the auditor is not very effective to detect the manipulations, frauds or errors in the accounting systems and the financial statements of the company, then the chances of audit failure are very high. The auditor shall make different audit plans for different types of the organisation according to the requirements of different organisations.

The procedures that are followed by the auditor to analyse the financial statements of the organisation, if the procedures followed by the auditor is not adequate or appropriate for the company, the audit failure might occur. The procedures contain some set of activities which is followed by the auditor or audit staff to make decisions regarding the picture of the financial statements or accounts of the company. Some examples of procedures are analytical procedures, confirmation from the debtors and creditor of their balances, inquiry from the employees individually, an inspection of records and vouchers of the company, inspection of the value of assets of the company, etc. similar to the audit plan, the procedures of the audit shall also be different for the different companies, the auditor shall not select only the general procedures, he shall analyse the financial statements of the company using special procedures as required by the different companies (Staszkiewicz and Górska 2018).

Internal control is analysed by the auditor at the initial stage of the audit. If the internal control of the company is effective, the auditor will conduct the audit leniently and if the internal control is of no use then the auditor will conduct the audit very strictly. In case the auditor is not able to examine the internal control of the company, there is a chance of miscalculation of the internal control and due to this, the audit failure occurs. For instance, if the auditor after examining the internal control in brief is of the view that the degree of authentic transaction in the internal control is very high, then he may conduct the audit is not a very exhaustive way and the audit failure might occur due to this. This is the reason that the auditor shall examine every stage of the internal control and shall ensure that no person has the authority to complete a single transaction on their own.

Another potential cause for failure of the audit process is the interest of the auditor, if the auditor has any kind of interest in the organisation, then he will be biased in favour of the organisation and therefore it is a pre-requisite of the audit that the person who is conducting the audit shall be independent and there must be no interest of the auditor in the company. Not only interest affects the dependency of the auditor, but the undue influence of any kind by the management upon the auditor shall also be eliminated. If there is any undue influence on the auditor, the audit will fail (ALAWAQLEH et al. 2021). E.g., in the case of Enron, the auditor of the company was trying to find some solution for the misstated amount of $ 24 billion while working with the management on the issue (Cullinan, 2004).

Another potential cause that can fail the audit is the sample size taken by the auditor. Audit contains an examination of a large number of transactions, the auditor can't examine every aspect of all the transactions executed by the company. This is why the auditor uses a sampling technique to conduct the examination. The auditor shall take the sample after analysing the degree of the fairness of the working of the management and the employees. The wrong sample size gives rise to the possibility of audit failure (Thomas 2002).

Conclusion

The audit is primarily conducted to give an opinion and the opinion will only be effective if the auditor can identify all the manipulations and errors present in the financial statements and accounting records of the company. For ensuring the authenticity of the financial statements of the company, the auditor shall make sure that all the potential causes of the failure of the audit shall be analysed and must be eliminated while making the audit plan and preconditioning the audit. The auditor shall ensure that all the staff members who are part of the audit team must be independent and must deliver their duties responsibly and effectively. Also, the auditor shall have a great work ethic and he shall also work in the direction which is favourable for the independent examination of the financial statements of the company which is being audited (Christopher 2019).

Role of Management Accountant

Introduction of Role of Management Accounting

Management accounting can be characterized as the procedure for recording the exchanges, breaking down the exchanges and afterwards answering to its past clients. The exchange incorporates every one of the everyday exchanges just as the significant exchanges which assume a significant part in navigation. The examination is finished with the assistance of frameworks of MA, for example, standard costing, CVP investigation and so forth Revealing is a vital piece of the board bookkeeping; detailing is done to the administration so the administration can settle on significant choices which are great for the organisation. His detailing is finished with the assistance of spending plan reports, cost reports, stock reports, and so on (Abdusalomova 2019).

The persons who are responsible for integrating the activities of the management accounting with the other operations and business processes of the organisation. Management accountants are well-qualified individuals who procure a good knowledge of the finance and accounting processes of the industry as well as the companies. The management accountant plays an important role in achieving the goals of the organisation effectively and efficiently. Similarly, the management accounting technique which is used by the management accountants also has an important role in managing the finance operations of the business. The role of management accountants and management accounting will be discussed in detail below (Kostyukova et al. 2018).

Analysis

The management accountant is responsible for the identification of all the financial transactions which are different, after identification, the assessment of the transactions is done. The first role of the management accountant is to integrate the business operations with the techniques and tools of management accounting to take the organisation towards the achievement of the goals and objectives of the organisation. Management accountants have the primary responsibility to implement the techniques of the management accounting effectively, therefore they shall implement the MA techniques in a manner so that the system of MA is integrated with the business processes of the company.

Management accountants are very well aware of the accounting policies of the company; therefore, the management accountants shall prepare the reports on the system of management accounting. Reporting is a very important task of the management accounting processes; therefore, the management accountants shall ensure that the management information system shall be maintained by the company so that the reporting of the financial information of the company can be easily and effectively transmitted to the users of these reports (Alvarez et al. 2021).

The assessment of the management accounting reports shall also be done by the management accountants of the company. The assessment of the information provided in the management accounting reports is done by the accountants and the evaluation of the performances of different departments and employees of the company are compared with the performances of other departments and employees, and also the comparison is done between the actual and expected performance, e.g., the technique of benchmarking is used by the accountants to evaluate the expected performances of the employees and departments, further the good performances are rewarded and constructive feedback for the performances which are not up to the mark is provided. This makes the employees very motivated and eventually, the overall performance of the company gets better.

The management accountants use the tools and techniques to make better plans. These plans are prepared with the help of tools such as benchmarking and budgets. The management accountants provide a roadmap for the future of the company. Accountants of the company make plans by using these techniques so that the company can analyse and predict future events that might occur. These plans make the company aware of the future uncertainties and help the management accountant to plan the remedial actions to mitigate the risk of the uncertainties, this helps the organisation to earn a good number of profits and generate more revenues.

Another role of the management accountant is to provide the decision-making function. The management accountants of the company analyse and evaluate different procedures, systems, tools, techniques and performances of the company and then make very significant decisions for the company. For instance, the management accountants of the company use the relevant costing methods to evaluate whether the company shall take the order or not. Moreover, other vital decisions such as deciding the implementation of the systems of management accountings, selecting the price of the products, procurement of materials, etc are done by the management accountants (Dahal 2019).

The role of management accountants has been discussed above and it is very much evident that management accountants play a very important role in the organisation. The management accounting process is also a very important part of the organisation and therefore, the roles of the management accounting process shall also be discussed. Management accounting is the hybrid of management systems and the accounting of the company. The main role of management accounting is to integrate all the functions and processes of the business with the systems of management accounting to make the objectives and goals of the organisation achievable (KÖSE and A?DEN?Z 2019).

Planning is done by the management accounting systems by using different tools and techniques. The budgeting technique helps the accounting to provide the estimations of future revenues, it helps the organisation to manage its cost and expenses. The management accounting makes sure that all the planning related to the pecuniary factors of the organisation is done with full safety so that the company can generate a good amount of sales and the profit of the company can be maximized.

Management accounting helps the company maintain control over the financial aspects of the organisation. The management accounting of the company enables the management to ensure the implementation of an effective and efficient internal control system so that the chances of errors, frauds or embezzlement is not possible. The management accounting of the company also controls the excess cost or the cost of abnormal nature. As the cost of the abnormal nature is eliminated the profit of the company increases.

The management accounting process helps the users to identify the causes of the unfavourable results. These causes are further analysed exhaustively and the reasons for the unfavourable results are identified by using the tools and techniques of the management accounting, this helps the organisation to make effective decisions and policies which can eliminate the causes. The management accounting process helps the users to make effective and efficient decisions so that the organisation can use the resources optimally and the highest possible gain from every resource available with the company can be utilized to generate more revenues and earn more profits, this will ultimately lead to the increased wealth of the shareholders which is an ultimate goal of the profit organisation (Thomas, 2002).

Management accounting integrates the systems of accounting with the business processes of the organisation. This also helps the organisation in dealing with the financial and other required regulations. The calculation of taxes, filing of returns of taxes can be done easily with the help of management accounting systems. Also, it helps the organisation to comply with the regulatory requirements. It enables that the company do not default in any type of regulatory compliance and helps build a good image of the business, at the same time it enables the business to save the cost which will be incurred in case of non-compliance with the regulations and laws. Another role of management accounting is to provide true and fair reporting to the top management (Thomas, 2002). Unlike the financial reports and statements, the management accounting reports are not public documents, this information is sensitive for the company and shall be reported to the top management of the company only. The information must be discreet and the management accounting shall make sure that there is no leakage in the system of reporting of the management accounting information. The company shall use the reporting mechanism to manage the flow of information within the organisation. The reporting under the management accounting is done by using the information channel which is safe and secure and no person other than the authorised one can access the information.

Conclusion

Management accounting is a very important function of an organisation. This function can provide a framework in the organisation which will enable the organisation to achieve the desired goals and objectives of the business. Management accounting is executed by persons who have immense knowledge of finance and accounts, and those persons are termed as management accountants. The role of the management accountant is very significant as they are responsible for making important business decisions regarding the pecuniary factors of the business of the organisation (Ameen et al. 2018)

References

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Alvarez, T., Sensini, L., Bello, C. and Vazquez, M., 2021. Management Accounting Practices and Performance of SMEs in the Hotel Industry: Evidence from an emerging economy. International Journal of Business and Social Science, 12(2), pp.24-35.
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Current Issues In Accounting Assignment Sample