Over the last few years, several factors have caused concern over the reliability of corporate financial statements. The downturn in the economy put additional pressure on management to meet financial targets. The complexity of business structures and transactions and the difficult accounting standards have become too complex for the average financial statement user. The greed and dishonesty of some auditors and high-profile business failures have caused criticism and scrutiny of the relationships between accountants and their clients. The scandals surrounding the business failures have also diminished the public’s confidence in the accounting profession and company management.
Many organizations, including the Securities and Exchange Commission and the American Institute of Certified Public Accountants, have debated over the issues that led to the business failures. There have been countless suggestions of how to correct the problems that caused the failures. In an attempt to restore investor confidence in the capital markets, new rules for accountants and their clients have already been enacted. Numerous studies and proposals are also being considered to strengthen the reliability of audited financial statements.
The rules dramatically change the accounting profession by creating a new private regulatory structure, restricting the services auditors can provide, and imposing larger fines for violators of the rules. The rules will also require public companies to enhance their audit committees and obligate their top management to certify financial statements. The new rules are intended to protect investors by improving the accuracy and reliability of financial statements. The additional costs of compliance and risk will be passed on to companies through increased audit fees, insurance, and salaries, leaving less for investors. The rules intended to protect investors will unfortunately result in additional costs for investors. Read more…
What is the role of accounting and financial decision making in Business? Why is essential to consider accounting data in relation to other factors in other decisions in all situations.
The word accounting can firstly be defined as the collection, recording, compiling and forecasting of financial information.
There are two different strands in accounting, and these are financial accounting and management accounting. Financial accounting has information about reports of the past, it can be used by external users, it needs to be reliable, accurate and consistent, it is ruled by accounting conventions and legal requirements, and it covers the company as a whole.
Management accounting focuses on the present and the future of the company, it is purely for internal users, it is usually easy to use, relevant and up-to-date, and it covers the departments and divisions rather than the company as a whole.
The first part of accounting is the collection of the data. This data is collected from the business transactions which are the:
- Buying and selling of goods and services
- Sales invoices, purchase invoices
- Statements, credit notes
- Remittance advice notes, cheque receipts
Read more…
Until recently, detecting fraud was thought to be a part of the responsibility of the accountant. Fraud was something the internal or external auditors were expected to guard against by their periodic audits. We now know that auditors can only check for compliance of a company’s books to the Generally Accepted Accounting Principles (GAAPs) and to company policy; therefore, a new category of accounting had to be established, one which revealed the fraud for companies with suspected fraudulent transactions. This new area of accounting is known as forensic accounting.
To fully understand the definition of forensic accounting, we can use parts of the definition of forensic medicine and accounting, both taken from Webster’s Dictionary, to produce a clear definition. Forensic medicine is a “science that deals with the relation and application of facts to legal problems.” Accounting is “the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the result.” So, the combination of these two definitions would yield forensic accounting as an accounting method that deals with the relation and application of system used to record and summarize business and financial transactions to a legal problem. Within this area of accounting, there are two general categories of accountants or areas of practice. They are the following: litigation support specialists and investigative or fraud accountants.
This profession has not been around for long. However, this line of work is nothing new, as there were people dealing with “employee” crime thousands of years ago. Back in the 3300 and 3500 BC, the world’s first accountants, or scribes, can be found in Mesopotamia and Egypt. These “accountants” recorded commercial transactions onto damp clay tablets or papyrus. Fast forward to the 19th century, Scotland introduces the first official chartered accounting profession. It started out as a profession where legal work accounted for a large portion of an accountant’s job. However, by the early 20th century, chartered accountants expanded their services to a much wider field and court appearances shrank relative to the size of their business. As one can see, forensic accounting is not a new and exciting field in accounting; rather it is a return to where accounting had all started.
Read more…
