How the Accounting and Financial Reporting Regulations Should Protect the Public Interest - Research Paper Example

Accounting and Society HOW THE ACOUNTING/FINANCIAL REPORTING REGULATIONS SHOULD PROTECT THE PUBLIC INTEREST. Financial reporting is of great importance to the companies, investors, government and the general public .In consideration of the given required financial reporting standards, the reporting style is of great impact to the organization as it a parameter on how the company or organization is performing, its anticipated market performance, whether there is a chance for growth or a decline and its present performance to mitigate against the competitors (Benston&G.j, 2006, 45). It’s of great importance that the same is reported in a format that is understandable to all the stakeholders .The government uses the same to determine its taxation formula and its implementation of the relevant policies .the investors uses it to determine whether to invest in the company ,increase its share invested and anticipate its future turnover. The general public is applicable in terms of provision of the corporate social responsibility that has compelled most companies to give back to the community (Benston&G.j, 2006, 55).. This necessitates thee need to use the Generally Accepted Accounting Principles (GAAP) that provides a yardstick for measuring and reporting the accounting terms. The regulatory capture is a situation where collection of investors with high stock valuation and investment anticipates a high turnover from their investment in a particular company when the rest of the public is with a small investment expects nothing at all. Regulatory capture refers to the effort by these interested investors to capture the imbalance of the anticipated resources and is in a position that is successful and drive the policy of the preferred interest group to be in force. (Cch Editors, 2008, 17) The regulatory body is highly concerned with protecting the interest of the public .the democratic nature of this body is vested on its ability to outsource support from the government. Despite its dire effort to attain its goal there is a problem of corruption on most government bodies of Australia and its regulatory capture (Funnell et al, 2012, 47). The Australian Generally Accepted Accounting Principles (AGAAP) and the Australian Accounting Standards Board (AASB) of Australia is bestowed with the responsibility of ensuring that the accounting financial reporting standards are reported as per the required principles, enrollment of auditors and the general compliance with the corporate financial standards in lieu with the provision of investors’ confidence in the industry. It is a mandated to check whether the license holder complying with the requirements. It was formed to prevent financial down fall that happened in a stock market poor performance in 1929 after misleading financial information led to a doctored stock market prices leading to a stock market poor performance and resulted in investors’ loss of confidence. The country was also issued with a number of equivalent accounting standards and together with some other European nations embraced the system early enough. The act was also mandated to oversee the stock market performance either for primary or secondary securities that were traded in the stock market or over the counter. The authority instead delegated the responsibility to a private firm and the main reason that transpired is because of the fact that it was given the responsibility not the authority thus created a weak end in facilitating the same. The Securities and Exchange Commission was given the mandate to set standards to the final reporting of accounting and financial statements of which it subsequently delegated the same responsibility to accounting professions (Pagell et al, 1999,84). Another factor that led to underperformance of The Accounting Principle Board (APB) was due to lack of motivation since it was ran by accounting profession who had the help of other professionals but lacked the spirit in executing what was required of then since most of the time they could attend work or meeting as it was voluntary and not mandatory. This attitude and general laxity drove the performance to rocks. It constantly underwent critic from the government and other industrial settings for failing to formulate a proper accounting and financial reporting standard. The main reason was lack of autonomy to perform its jurisdiction .the majority of the members being from public firms inclined the members to a perception that the board served on self centered motives rather than perform to the requirements of their job description and deliver for the interest of everyone. The minority groups become another headache to the performance as they were under represented and felt the minority complex. this necessitated the formation of another body to succeed the operation of this setting. The formation of the Financial Accounting Standards Board (FASB) facilitates the provision of financial information on time and to the required standard proved efficient and promoted the general public confidence thanks to it empowerment and independence to have its full time membership, board of committee who oversaw the general wellbeing and operation of thee Act. The subsequent government support to the bard henceforth improved the way it handled its role and responsibilities. It had an additional motive of providing non-profit organizations with to facilitate the providing of its requirements since they provided their financial information using the Australian International Financial Reporting Standards (A-IFRS) rather than using the International Accounting Standards Board (IASB).The constant conflict on reporting of the financial information has constantly caused a confusion in the financial statement therefore necessitating for the call Australia to simply embrace International Financial Reporting Standards (IFRS) (Holt et al,2013,95).The same pressure has resulted in the need for Australian Accounting Standards Board (AASB) to embrace IFRS. It is highly recommended that the board should come up with some policies to mitigate on the short comings of the role at hand. It should try find out whether its necessary for the membership to be extended to public members or allow the current participating members of the accounting body to be part of the committee that comes up with the policies of the organization performance with a collective responsibility of providing the public with the accepted financial reporting standard and protection of violence of the rights it bestowed to the general members of the public (Gibson & Charles, 2012, 36). The policy should also strategize on how the membership should be attained, remuneration and general performance limits in order to achieve a favorable outcome. The body should also be given its autonomy like ability and power to internally review its system in order help come up with strategies on how the organization should best perform. It also of great importance to consider if the body should be expanded to oversee up the standard settings and empowered to approve the adequacy and competence in handling the responsibility tagged on it. This extends to addition of powers to inspect the books of accounts for both public and private companies. The body should be in a position to prepare a strategic and annual performance report that will aid in comparison of the reporting standard of every financial year. The same applies to additional task of auditing financial statements and if it has dedicated any responsibility, it should be in a position to oversight the same and strictly monitor its performance to ensure its working in tandem to the required financial reporting standards. The act should include the ability to discipline the members for non compliance with the rules on reporting the accounting and financial standards. Another aspect is to determine whether the present autonomous rules are in a better position to protect the public interest and clearly outline whether the current independent rules aligned to auditors should be set by the government or by private sector .despite it being a role to auditors to ensure proper planning and performance of the audit, its strongly recommended that the financial materials should be free of fraud ,under or over statements of financial figures, errors or other illegal acts. Auditors responsibility of detecting fraud can cause a difficulty in the reporting .there is need to create a serious address on the issue of fraudulent reporting that is driven by the motive of self interest that yield in irrelevant earning. The auditors additional powers to the current one can substantially be related to the need to search for flaws in the direct control of the organization, a factor that has constantly caused misunderstanding and locker heads. Another recommendation is the ability to factor in the dynamic business environment and synchronize with the present reporting standards in order to curb the risk on economic consequences associated with the introduction of a new standard. This will enable an early detection in the performance of the organization and helps in drawing up of measures to mitigate against possible adverse effects on the investors and other stakeholders. This is also in lieu to protection of assets and helps prevent an oncoming possible business risk (Gibson &Charles, 2012, 22). The overall teamwork spirit that involves the Government, investment experts and analyst and other accounting professionals is hereby highly recommended as it can provide a reliable information on the overall performance, reporting, and mitigation policies to apply .the same spirit should be approach with independence and freedom to express an opinion subject to evaluation of the same in order to prevent self interest rather than protect the public interest The need for the accountants, auditors and other financial experts to adjust to the changing dynamic business world is vital in reengineering the reporting since the information era thrives mostly on the issue of communication and calls for the standard setters to be in tandem (Kim et al,2011,66).. Accountants are forced to report on the new reporting standards set by the board and that agrees with the mode of reporting especially the emails and other appropriate media. Accountant therefore has a role to play in keeping this regulation and ensure they are adhered to every time they are reporting financial figures in order to avoid conflict between the public and the company on the investment objectives. The way the reports are passed as in relevance and its reliability is at accountant’s hand. He should ensure that what is reported is realistic, timely ,consistent and report on the actual accounts and the anticipated therefore drawing the variance between the two sides and facilitating the need to draw comparison .This is an essential feature in the company’s day to day operation as it’s a yard stick to determine the strengths that the organization has in comparison to its competitors and weaknesses within and without reach of the business ,opportunities that might boost the yield of the business and subsequently to the investors, government, creditors and other relevant stakeholders, and finally the threats that might pose as the risk to the business operation, investment especially competitors and the current market trends, change in fashion and preference and product innovation (Tomasic,et al,2002,94). The adherence to the overall reporting standards is advantageous to the accountants as it helps in disclosing the real accounting figures and helps the financial analysts and government agencies determine the current financial position of the organization. The standard facilitates comparison of books of accounts by accountants and determines the financial situation of the organization. The ease to understand the accounting concept courtesy of the standard is of financial advantage to the accountants since it helps in transfer, determination and comparison of financial figures. It’s also improves the relevance of the accounting information to the accountant and auditors as the form it is communicated is easily, readily and internationally accepted. The same accounting reporting standard helps the accountants in assessing the risks which might have an intention of fraud or misuse of assets that translates to the loss of revenue to the investor and general public. The audit reports that accountants use are used to detect fraud or misuse of finance .accountants can also serve better the financial information users and other business clients thus protecting the public interest and create confidence since the same aspect and protection of investors’ assets is a parameter of internal weakness on performance and possible fraud (Australian Society Of Cpas. 1998, 44). The standard also assist the accountants in steering the organization’s mission, vision and the ultimate objective or goals .This is a major factor of enticing the potential investors to put their investment in the company and the general public. It also assists in decision making processes and policy interpretation for the decision that have the responsibility of driving the company to meeting its goal (Pagell et al, 1999, 19). References AUSTRALIAN SOCIETY OF CPAS. (1998). Australian CPA. Melbourne, Australian Society of Certified Practising Accountants. BENSTON, G. J. (2006). Worldwide financial reporting the development and future of accounting standards. Oxford, Oxford University Press. http://site.ebrary.com/id/10283733. CCH EDITORS. (2008). Australian master accountants guide 2008/09. Sydney, CCH Australia. FUNNELL, W., & COOPER, K. (2012). Public Sector Accounting and Accountability in Australia. Sydney, UNSW Press. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=870798. GIBSON, CHARLES H. (2012). Financial Reporting and Analysis + Thomsonone Printed Access Card. South-Western Pub. HOLT, G., TWEEDIE, D., RICHARD, P., MIRZA, A. A., & ORRELL, M. (2013). International financial reporting standards (ifrs) workbook and guide practical insights, case studies, multiple-choice questions, illustrations. Hoboken, N.J., Wiley. http://rbdigital.oneclickdigital.com. KIM, D., & SOLOMON, M. (2011). Fundamentals of information systems security. Sudbury, MA, Jones & Bartlett Learning. LOFTUS, J. (2013). Understanding Australian accounting standards. Milton, Qld, John Wiley and Sons. PAGELL, R. A., & HALPERIN, M. (1999). International business information: how to find it, how to use it. New York, AMACOM. TOMASIC, R., BOTTOMLEY, S., & MCQUEEN, R. (2002). Corporations law in Australia. Sydney, Federation Press. Read More