Contemporary Issues in Accounting & Finance - Essay Example

CONTEMPORARY ISSUES IN ACCOUNTING & FINANCE CONTENTS International accounting standards and the standards setting process 1.1 Conceptual framework..............................................................................................4 1.1.1Advantages of conceptual framework...............................................................4 1.1.2 Disadvantages ...............................................................................................4 1.1.3 Principle based verses rule based ...................................................................4 1.2 The International Accounting Standards Setting Process.........................................4 1.3 Influences of this listed organisations on IAS..........................................................5 2. Forensic accounting 2.1 Historical development of forensic accounting........................................................6 2.2Liability exposure that the forensic accountant........................................................8 2.3 Educational and professional training requirements of forensic accountants..........9 3. Environmental accounting and related auditing...................................................9 4. Corporate governances 4.1 Definition..............................................................................................................10 4.2 Importance of corporate governance.....................................................................10 4.3 Definition of Audit committee...............................................................................11 4.4 Role of audit committee.........................................................................................11 4.5 Advantages of audit committee.................................................................................12 4.6 Disadvantages............................................................................................................12 4.7 Role of the Audit Committee should not be left to the voluntary codes of practice but should be regulated by statute.......................................................................................................12 5.Independent auditors’ report 5.1 Contents of qualified audit report.............................................................................13 5.2 Reasons the form of audit report that you would give if: .........................................13 5.2.1 Make peace limited..............................................................................................13 5.2.2 Cross channel freight limited. .............................................................................14 References............................................................................................................15 1. INTERNATIONAL ACCOUNTING STANDARDS AND THE STANDARDS SETTING PROCESS 1.1 Conceptual framework This refers to the theory of accounting that is prepared by standard setting against which practical problems can be tested objectively.Ordinarilly; it will deal with financial reporting issues such as the objectives and the general users of financial statements. The concept of recognizing and measuring the elements of financial statements, the characteristics that make the accounting information and the basic element of financial statements. (Lexicom, 2007) 1.1.1Advantages of conceptual framework. According to Lexicon, the advantages and disadvantages of conceptual framework are; i. Ensures the internal consistency of accounting standards. This will nullify disputes that may arise due to inconsistency ii. Provides an overarching theory of accounting applied to limit the volume of accounting standards iii. It is also vital for the provision of guidance to the people who set the accounting standards as they review financial reporting rules. iv. It helps the auditors resolve the financial reported problems in the absence of accounting standards. 1.1.2 Disadvantages The standards that have been set are usually fixed making it hard for investors from other states to operate using the same starndards.Foreign investors usually have their standards and it becomes hard for them to cope with the new standards. (Lexicom, 2007) 1.1.3 Principle based verses rule based Principle based systems will provide a conceptual framework basis that will be followed by the accountants. In centrally, rule based systems has detailed rules which are to be followed. Under the principle based system, one will lay out the objectives of good reporting and then provides guidance that explains the objectives. In rule based systems the rules are unavoidable and its intent is not to provide guidance. Both systems are used by accountants depending on the nature of the objective. (Toppe, 2008) 1.2 The International Accounting Standards Setting Process 1.2.1 IASC.This was formed as a not for profit organisation that is incorporated in the US. It is the parent entity of the IASB which is mandated with setting of standards. Its structure includes Trustees, Standard Advisory council, IASB and the International Financial Reporting Interpretation committees. (IFRS, 2012) 1.2.2 IASB assumes the accounting standard setting responsibilities from the IASC.This is because there was restricting on the move to shape IASC for the future. The structure includes IASC foundation. (IFRS, 2012) 1.2.3 SAC (Standard Advisory Council) is vital for it ensures that the objectives of the companies are met. This consists of the selected board of directors. They address on the matters that relates to the standards of the organisation. (Board, 2008) 1.2.4 IFRS Interpretation committee ensures that a consensus on the appropriate accounting treatment and providing an authoritative guidance on those issues. This normally consists of 14 voting members appointed by the trustees. (Board, 2008) 1.3 Influences of this listed organisations on IAS 1.3.1 IFAC (The International federal of accountants.) This is a global organisation that is mandated in the amending the bylaws and other auditing and accounting standards such as IAS. (Touche, 2008) 1.3.2 EC (European Commission) is mandated to regulate and control the usage of IAS in countries. This is to ensure that the application of IAS is only instituted to place where it is due. (Touche, 2008) 1.3.3 UN has enabled the expansion of IAS .This is ensured by allowing all members of UN to be part of IAS before being given the provision of becoming UN members. (Touche, 2008) 1.3.4 OECD (Organisation for Economic Co-operation and Development) is mandated to propel all registered cooperation to use IAS.This ensures that appropriate course of action is taken in the course of violation of IAS. (Touche, 2008) 1.3.5 SEC (Securities Exchange Commission) has a duty to note the inconsistency of application of IAS to all members that are listed in the security exchange. (Touche, 2008) 2. FORENSIC ACCOUNTING 2.1 Historical development of forensic accounting According to Zysman the word forensic is a derived from a Latin word forensic, implying belonging to the forum, which was ancient Rome site for public debating. Experts have a view that forensic accounting can be traced way back to the ancient Egypt to the people who kept who kept the inventory of the great pharaoh’s valuable assets that spanned from gold, grains and livestock (Buckstein, 2010). Egypt. There is much archaeological evidence that the scribes in 3300 BC to 3500 BC between Mesopotamia and Egypt recorded commercial monetary transactions using damp clay tablets or the papyrus (Buckstein, 2010).Alteration of the records will call for fines or worse punishment which involved mutilation or death. Normally, the original document was enfolded into a clay envelop which was not supposed to be tamped with. India. There was evidence of forensic accounting between 321 BC and 184 BC.Historians claim that their was a detailed list of 40 crimes of embezzlement of vital assets. Appropriate course of punishment was administered depending on the magnitude of the fraud. This was to ensure that the vices were nullified away. (Zysman, 2006) Europe and great Britain. The accounting historians have been able to get reliable references of at least three cases were individuals mandated to handle accounting records and also had significant position in the communities participated in fraud cases .This was between 16th to 18th C where one of the cases involved accounting fraud, a spectacular stock collapse of Britain’s South Sea company in 1720 was evidenced to had contained fraud and embezzlement of assets. Canadian Roots. The first documentation of forensic accounting case was in Canada. This case Meyer vs. Safton in1817 concerned a bankrupt stated and it featured some expert witness who examined the accounts of the bankrupt of that party (Brown, 2006) A Scottish account by the name James McClelland decided to set up his own practice firm in 1824.His aim was to provide his expertise in the matters that involved arbitration support. (Brown, 2006) In 1854 Edinberg Society of accountants successfully sought a royal charter from Queen Victoria to continue proving the services to different firms across the state. In the 1946 Mr. Morris Pell bet that joined price water coopers in 1911 developed his own forensic accounting. Forensic accounting counting to attract attention with many articles on this subject begging to appear in accounting journal in the latter 1800. (Don, 2003) 2.2Liability exposure that the forensic accountant The forensic accounting can face a liability of professional negligence. This involves some basic assumptions due to the complexity of the fraud. However there are opportunities for accountants to mange their risks. The most effective way for this forensic accounting to manage liability to clients is through performance of quality work involving professional competence and due care. (Peter, 2010) Forensic accountants may also be exposed to disputes with their clients or other parties. This is normally part and parcel of professional life. The disputes can give rise to complaints against the accountants and also allegations. There can also be an act of omission caused by the forensic accounts in the course of their service. This might cause much financial loss to the person to whom the duty of care is owned. (Peter, 2010) 2.3 Educational and professional training requirements of forensic accountants Forensic accountants must have Bachelors degree in accounting or a related subject. It is also important to progress with masters for competence and reliability. They are also required to have CPA Certification which might take minimum of five years. They can do certified fraud examiner or certified forensic accountant after which they take 2 years of experience to be full time forensic accountants. (Anonymous, 2009) 3. ENVIRONMENTAL ACCOUNTING AND RELATED AUDITING Normally, climate change alters the rules of doing businesses. There will be industries that will win and those that will loose. The large investors like pension funds are on the move to know the winners and the riskier investment in the economy. Companies are increasingly using scenario analysis to the understanding of the strategic and risk related issues on current and possible new regulations. (Desjardens, 2009) Companies will want to identify and act upon opportunities as well as prepare the meeting compliance and reporting obligations. Ordinarily the management and the board of directors would want reliable performance metrics and reporting to support their informed decisions and oversight about the climate change issues and their future bottom line impact. (Desjardens, 2009) Investors have also been seeking reliable disclosures about climate change risks and material bottom line impacts beyond what securities currently call for in periodic findings. Climatic change will present new climatic issues in both mandatory and voluntary disclosure channels. There are usually two categories of mandatory reporting .This include the continuous disclosure reporting and the required filling under the governmental climate change. Auditors of financial statements may have new transactions and other associated professional risks to address in the course of auditing as accountants have to adopt with new measures and reporting challenges. (Desjardens, 2009) 4. CORPORATE GOVERNACE 4.1 Definition According to investopidia, this is the system of rules and practices by which a company is directed and contolled.It involves balancing of interest of stakeholders which include shareholders, customers, suppliers, management, financier, government and the community (Investopidia, 2008) Corporate governance can also be defined as the framework of rules and practices by which a board of directors will ensure the accountability; fairness and the transparency in a company’s relationship with it own stakeholders. (Buzdictionary, 2003) 4.2 Importance of corporate governance. Corporate governance is vital since it enhances accountability.Normally, their is a system of rules and hierarchy to be followed in any firm. This ensures that members understand what they are accounted for. This helps people make important decision of the organisation. Corporate governance also encourages transparency which enables the business to make profits. When their is transparency their is accountability with zero embezzlement of funds. (Klazema, 2014) Corporate governance also ensures all the interests of stakeholders are catered for. This will enable the smooth running of the company and there would be no conflict and disputes due to mutual understanding. (Klazema, 2014) 4.3 Definition of Audit committee This refers to selected number of members from a particular board of directors mandated to help auditors remain independent of management. The members may be three to seven and that they are not part of management. (Moumou, 2012) 4.4 Role of audit committee. Audit committee will provide oversight and service as a check and a balance on the firms’ financial reporting systems that is used. They oftenly provide independent review and oversight of the reporting process, internal control and other independent auditors. (Moumou, 2012) The committee creates forums which exempt the management in which auditors and other interest parties can freely discuss issues and concerns that affect the company. The audit committee ensures that the management adheres to good systems of internal control, that appropriate procedures are instilled to access the management practices and the internal controls and that the external auditors can access the financial statements. (Moumou, 2012) 4.5 Advantages of audit committee This advantages and disadvantages consist of the following; (Pol, 2004) i. There is better communication between the management, directors and the external auditors. This is because of monitoring aspect and disclosures that are done by the committee ii. There is confidence of shareholders and general public in the public financial information. This is because information is always reviewed by independent committee. iii. There is a good internal reporting mechanism in comparison to reporting directly to the directors who will amend the unfavourable internal audit. 4.6 Disadvantages. i. It creates fear of unknown that the management might be overthrown ii. There are aspects of wastage of time. Most time is used by the audit committees attracting extra costs. 4.7 Role of the Audit Committee should not be left to the voluntary codes of practice but should be regulated by statute. Ordinarily audit committee may decide to pass a decision that will not only change the company system but also affect other companies. It is important to note that vital decision that the external environment of the business especially the competitors may bring disputes among companies. Audit committees should be under statute for this will ensure that committees do not make decision that will seem unfair to other companies in the same industry. (Moumou, 2012) 5. INDEPENDENT AUDITORS’ REPORT 5.1 Contents of qualified audit report. i. Report title that shows to whom the audit report is addressed to. ii. Audit report address which is vital in knowing the location of the client. iii. The introduction paragraph that reveals the scope of CPA work. Whether it is review or compilation. It reveals the financial statements that were audited and the statements to the effect were the prime responsibility of the management. iv. Scope paragraph reveals what was done by the auditor with reference to the GAAP.There is indication of what the auditor is striving for. v. The opinion paragraph that represents the auditor’s conclusion regarding to the audit. There is no guarantee of the liability claimed by the client and that the opinion relates to GAAP. vi. Name of CPA firm is also indicated clearly. vii. Audit report date is also put to set the limit auditors responsibility which is likely to be some period of time. 5.2 Reasons the form of audit report that you would give if: 5.2.1 Make peace limited The uncertainty surrounding the cash takings only related to the food hall has been caused due to poor recording of cash sales that are made.Ommissions of some vital sales could have been avoided which caused poor sales. The uncertainty surrounding the cash takings related to all sales has been caused by lack of materiality which involves the lack of documentation and receipting by the company. This is usually important to represent true and fair value without any omissions whatsoever. 5.2.2 Cross channel freight limited. There will be an agreement with the directors regarding the valuation of the transferred fixed assets of the Dover deport. This agreement should be after evaluating the criteria used and the valuers that performed the audit. It will therefore remain the management responsibility in the respect to evaluation. Conclusion with the regards to permanent decrease in the value of transferred fixed assets will be the responsibility of the management. However the certainties of their full utilisation will depend on the future economy that will cause the change in the price. This will be my take as an auditor. (Moumou, 2012) BIBLIOGRAPHY Anonymous. (2009). Career information. Retrieved 2015, from http://education-portal.com/articles/Forensic_Accounting_Career_Information_and_Education_Requirements.html Board, I. (2008). IFRS Interpretesions. Retrieved 2014, from http://www.ifrs.org/The-organisation/Members-of-the-IFRIC/Pages/About-the-IFRIC.aspx Brown, M. (2006). Forensic accounting; past,present and future. Retrieved 2014, from http://www.envoynews.com/rwcpas/e_article001108198.cfm Buckstein, J. (2010). Forencic accounting;far from the phenominon. Retrieved 2014, from https://www.cga-pdnet.org/Non_VerifiableProducts/ArticlePublication/ForensicAccounting/ForensicAccounting_p1.pdf Buzdictionary. (2003). corporate governance. Retrieved 2014, from http://www.businessdictionary.com/definition/corporate-governance.html Desjardens, J. (2009). The business of climate change. Retrieved 2014, from http://www.camagazine.com/archives/print-edition/2009/dec/features/camagazine31688.aspx Don, E. (2003). History of forensic accounting. Retrieved 2014, from https://sites.google.com/site/cuttlebiz/past-courses/accounting/accounting-presentations/forensic-accounting/history-of-forensic-accounting IFRS. (2012). IASB. Retrieved 2014, from http://www.ifrs.com/updates/iasb/about_the_iasb.html Investopidia. (2008). Corporate Governance. Retrieved 2014, from http://www.investopedia.com/terms/c/corporategovernance.asp Klazema, A. (2014, May). importance of corporate governance. 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