Contemporary Issues in Accounting and Finance

Contemporary Issues in Accounting and Finance - Essay

Accounting is a wide concept and is linked with some of the social aspects, which are not followed by many of the organisations. It is noticed that changes must be made in the existing regulatory systems to make sure that accounting becomes more socially responsible. This aspect needs to be considered precisely to make sure that accounting regulators are acting in the public interest. The main of the essay is to identify the issues and make proper recommendations related to those issues so that accounting procedures can be made more socially responsible. For this purpose, relationship between accounting and finance theory, the role of regulations in the production and dissemination of financial information and current accounting issues in respect to social concerns are provided.

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Accounting theory refers to the review of historical foundations of accounting practices and of the ways in which the accounting practices are verified. These are then included in the regulatory framework which helps organisation in governing financial reporting and financial statements. While on the other hand, finance theory is known as the different ways in which individuals and businesses can obtain investment or money for their projects. It also links to the allocation of the investment to the projects with the consideration of risk. Therefore, the link between the two theories can be determined in the manner that finance theory would assist accounting theory that is in the review of financial statements (Chua & Taylor, 2008). Financial statements have to identify and state the expenses, investment and cash as it is the most significant part of accounting. Hence, this information can be obtained by making use of financial theories as it is linked to money. Moreover, the concept of finance also incorporate the study and use of cash as well as other assets along with the management and profiling of risks which are  the major concern of accountants at the time of preparing statements and conducting financial reporting. Therefore, there is strong link between financial and accounting theories as both interrelate and help the organisation in managing their financial concerns (Sian & Roberts, 2009).

Two most prominent regulations that play vital role in production and dissemination of financial information are International Financial Reporting Standards (IFRS) and International Accounting Standards Board (IASB). With the help of IFRS the organisations can make their financial reporting effective in the manner that they highlight the rules that must be focused on them at the time of producing financial information. They are guided to make sure that illegal transaction has not been passed and reported in the statement of the intention to show increased revenue and profit so that investors can be attracted (Carmona & Trombetta, 2008).  This is socially unethical as it could give rise to various problems and is not in the interest of public. It is the responsibility of these bodies to ensure that financial statements are prepared and presented in the interest of public. In addition to this, IFRS brings transparency with the help of improving international comparability as well as quality of financial information. This enables the investors as well as participants of other market to make informed economic decisions (Carmona & Trombetta, 2008; Chen, et al., 2010).

In addition to this, IFRS also strengthens accountability with the help reducing presence of information gap between the investors and organisation to which they have entrusted their money. This shows the role of the regulatory bodies towards dissemination of financial information (Wilson & Adler, 2013). Moreover, IFRS also assist in economic efficiency through helping investors in the process of identification of risks and opportunities associated with the organisation. This improves the capital allocation of the firm and forces them to issue exact, fair, and accurate financial information to the people (Bellandi, 2012). This depicts that IFRS contributed widely towards making accounting procedures socially responsible. Despite this, some aspects are there which is not considered by organisation as per the regulatory system and the social issues take place such as avoidance of tax, accounting on internet and others. For this purpose, it becomes essential to make changes in the current regulatory system (Daske, et al., 2013; Chua & Taylor, 2008).

On the other hand, International Accounting Standards Board (IASB) is known as the independent standard-setting body of the IFRS Foundation. They are responsible for engaging closely with all the stakeholders such as analyst, investors, business leaders, regulators, and accountancy profession. Being the body of IFRS they are responsible to determine the whether the organisations are following the rules or regulations. Moreover, they are also responsible to determine the aspects in which the production and dissemination of financial information is contributing in the interest of public (Weirich, 2012). Both the regulatory bodies are expected to work in flow as they have made some specific standards for all types of transaction so that recording becomes convenient for the organisations. This further demonstrates the fact that financial information must be produced and distributing effectively by making sure that no errors or illegal aspects are included in it with the intention to increase profits. The organisations do this with the intention to attract investor, which is completely socially unethical and could make the firm prone to various penalties (Hodgdon, et al., 2009; Daske, et al., 2008).

It is noted that due to the rapid growth in the business industry it is quite difficult for different accounting bodies to prevent the risk of error that might deceive the investors. For that reason, it is important from an organisational prospect that they must use all possible resources and consider the rules that was imposed by the higher accounting bodies in order to safeguard the investment of shareholders and investors. There are certain accounting issues that must be considered by the higher officials of an organisation and minimise it to the negligible level that would definitely enhance the protection of financers to the utmost level (Gleason, et al., 2008). Some of the key issues are as follows:

Tax avoidance is one of the foremost issues that create problems for the tax collecting authority to collect an appropriate amount of tax from an organisation. Moreover, a slight difference is present in the laws of tax and accounting regulations that might raise the problems for them to execute their task substantially.  It is found that by adopting the rules & regulations of IFRS and IASB it would definitely help to minimise the risks of tax avoidance to the negligible level (Bharath, et al., 2008). 

It is observed that most of the organisations are quite keen to enhance their business activities in order to attain the higher profit and market share. For that purpose, most of the businesses use e-commerce techniques through which they can easily expand their business operations to the utmost level. Due to the rapid growth in business organisation uses different online systems through which they can execute their accounting operations that might be theft or misuse by their competitors in order to discourage their clients to dis-invest their money from that particular organisation (Owen, 2008).  

Corporate governance is one of the most important elements that should be considered by the top officials of an association in order to execute their key operations ethically and professionally for the reason that it would help them to attain their set goals and objectives in a more appropriate manner. Moreover, due to the cutthroat competitions firms are quite keen to take advantage by using innovative techniques that might create the environmental issues for a common person.

It is quite important for an organisation that is involved and deals with the public security to must follow the accounting standard at the time of recording the transaction on fair value for the reason that it would ultimately influence the financial statements of an organisation. Moreover, the IAS 16 is imposed to help the financial experts to record their assets on the fair value that might help them to minimise the errors to some extent. It is noted that an investor can merely look on to the financial statements of an organisation at the time of investing their precious money into it, for that reason, these statements must be true and present error-free information (Laux & Leuz, 2009).

There are certain recommendations that should be considered by the top officials and financial experts of an organisation in order to enhance the security of shareholder and investors and minimise the level of risk to the negligible level. Some of the key recommendations are as follows:

  • It is important from an organisational prospect that they must have an adequate team of experts that are able to run the business operations importantly particularly they must have a competent internal auditor that can minimise the level of risk to some extent. Moreover, in the considered case of WorldCom the role of internal auditor was quite crucial as he uncovered the fraud of around $3.8 billion. 
  • Furthermore, in the considered case of Tyco it is noted that due to the lack of strict rules & regulations the incident was take place and cost them approximately $150 million.
  • It is important from an organisation prospect that they must focus on social issues as well for the reason that it throws a good impression on external users of financial information
  • Moreover, they have to make certain amendments that might be used to record the economic transactions more accurately.
  • It is vital to the success of an organisation that they must have competent top officials that can easily enhance the level of data security. In the considered case of Saytam due to the competency of board of directors, they are able to assess the falsely boosted revenue by the financial experts that are responsible to deal with the financial activities of the business. 
  • It is a core duty of the accounting bodies “IASB & IFRS” to impose strict rules and regulations that must bound business to record error-free transactions and provide accurate information to external users. In the case of Freddie Mac, they intentionally misstated and understated earnings in order to avoid tax. For that reason, there must be some proper regulations that bound different business to run their business operations ethically. 
  • In the case of Bernie Madoff, the top officials of an organisation deceive investors by issuing the largest Ponzi scheme ever. Due to the lack of control and regulations, this event was take place that is why the higher bodies must restrict organisations to launch these types of schemes in order to enhance the protection of shareholders and investors.
  • It is found that most of the organisations are quite keen to use advanced information systems in order to manage their resources in a more appropriate manner and increase the return to the utmost level.
  • It is a core duty of the tax collecting authority that they must assess the financial statements of different business in order to collect the appropriate amount of tax.

To conclude this essay it is noticed that the role of accounting bodies is quite crucial to provide enough protection to the investors and shareholders for the reason that their impose rules bound organisations to execute their economic activities ethically and legally as well. Moreover, it is quite important from an organisational prospect that they must have competent financial experts that are responsible for managing the financial activities substantially because this is the only way through which they can easily minimise the level of risk to the negligible level.

 

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