An Effective Accounting Systems and Financial Management with Reference to AT & T - Essay Example

A Study on effective accounting systems and Financial management with reference to AT & T A case study usingAPA referencing ) A brief Synopsis of the study: This article discusses about the importance of need for effective accounting systems and effective financial management and their relevance in the organization chosen for the study ,i.e the AT & T. Also the article tries to bring in a comparision between the accounting systems and practices suggested and the accounting practices in use by AT & T. Finally the article discusses about the findings of the study and offers suitable and necessary suggestions for improvement in practices by the subject chosen for study. Introduction: In any business information is required for planning, control, evaluation of performance and decision making. Thus information can be provided only when transactions are recorded, classified and summarized properly. Thus the need for accounting system arises. It is therefore necessary for organizations whether big or small to maintain proper books of accounts for the aforesaid purposes. In today’s cut throat competition organizations cannot survive without accounting records, systems or plans and forecasting. Infact financial analysis of organizations is done purely by using tools such as accounting transaction records. Any forecasting or planning done without the aid of a good accounting records can merely go in vain. The present scenario of today’s economy is complex, highly volatile and is like a maze to deal with. As the enterprise becomes larger, its operations more complex, accounting records, analysis, and reports becomes more complex and critically important for the guidance of the organizations. So it is clearly evident that the role of the organization is of paramount importance to any organization, similarly the need for an effective accounting system and a sound financial management system. In fact the role of accounting addresses two major concerns in an organization. Firstly the accountant reports in regular intervals on progress of and financial solution to the organization. Such reports and statements are vital to Management, Investors, creditors and other stake holders. Secondly the accountant supplies detailed analysis and studies of costs and revenues by which management makes decisions for the future. Let us take the example of Walmart, it operates with the help of an intricate and robust system of accounting, also extremely technical and very much involved. There is definitely a need for such an accounting practices and a sound financial management system. Criteria For Effective Accounting system: The following are the effective accounting system practices for any firm to follow. 1. A sound and fair financial policy. 2. A Sound financial procedure. 3. Compliance with standard accounting procedures (both national and international) 4. Maintenance of books of records in compliance with the procedures. 5. Maintenance of proper registers necessary for organizations book keeping. 6. Maintaining a record of minutes of meetings of Board of Directors as under section 193. 7. Board meeting attendance register. A Sound and fair financial policy: A Financial acts like a directive on the aspects involving financial operations of the organizations. It basically contains guidelines to be necessarily followed by organizations for activities involving financial implications. It basically ensures organizations of transparency, consistency and accountability of various activities carried out in organizations. It aids in esay decision making. Some of the examples of financial policies are budgetary policy, expenditure policy, wages and salary policy, cash and banking policy and auditing policy. However organizations have to ensure the financial policies are fair and framed in a such way that they comply with the legal and accounting standards of repute. They should comprehensively address real life situations and should be implementable at reasonable cost. Sound Financial Procedures: Procedures are standard work practices used for implementing policies. Infact they act like basic guidelines for steps to be followed in implementing policies. Such procedures and policies are vital for any organizations survival. Inorder to be an effective organizations they have to follow the following steps in Accounts book keeping: Step –i: Organizations needs to take a look on how money is managed, by whom it is managed. Step-ii : Organizations need to collect all the financial scribbles of word documents, excel sheets etc where information such as “to pay” and “to bill” are recorded. Step – iii: Organizations needs to start book keeping and accounting. Step –iv: Organizations needs to create financial goals as per the books. So if an organization wants be effective they need to follow the above four steps procedure and can achieve the accounting cycle which consists of Recording- Classifying- Summarizing A properly maintained books of accounts should ensure the following outcomes: 1. Assurance of completion of accounting and financial operations in time to supervisor. 2. Disclosure of all business transactions to stake holders upon need and in which transactions are apt, reasonable and necessary. 3. Book of accounts should safe guard assets. 4. Should comply with organizational policies and procedures. 5. Should keep track of financial and operational risks 6. Should keep track of all cash receipts. 7. Decide upon the net profit/loss of the business unit. 8. Performance of employees both department wise and individual needs to be assessed. 9. Book of accounts should be helpful for settlement of taxes and other liabilities. 10. Should provide scope for planning based on past experiences. 11. Should be helpful for various parties involved in the business concern. 12. Based on such financial information business should be able to decide which activities are to be continued or dropped. Sound compliance with Regular Accounting procedures: The organization, whether big or small needs to identify if the procedures and policies followed by it or in line with the suggested accounting procedures by Governments. Such compliance will ensure transparency in its operations and creates confidence in its operations to the stake holders. From the analysis of the annual statements of AT&T As the size of the financial statements are large the compliance with accounting policies and estimates have a more significant impact on the financial statements in the case of AT&T . Some of the policies presented by the company are as follows Allowance for Uncollectibles: 1) The company maintains an allowance for doubtful accounts for estimated losses that result from the failure of customers to make required payments. 2) For determining the allowance, the probability of recoverability based on past experience are taken into account This policy is in accordance with the accounting conventions as it adheres to the concept of “Convention of Conservatism or Prudence”. Pension and Postretirement Benefits: IAS 26 (International Accounting system ) The objective of IAS 26 is to specify measurement and disclosure principles for the reports of retirement benefit plans. All plans should include in their reports a statement of changes in net assets available for benefits, a summary of significant accounting policies and a description of the plan and the effect of any changes in the plan during the period. So as to comply with the said accounting standard the following is disclosed by the company: The company adopts actuarial valuation. The company disclosed the net assets available for benefits The company also gave a note disclosing the actuarial present value of promised retirement benefits From the disclosures and notes given the company strictly followed the provisions of IAS 26. Depreciation: Initially Depreciation is guided by IAS 4 but it was withdrawn in 1999 and was replaced by IAS 16, 22 and 38 . The company complied with the above said standards as it fully disclosed the provisions regarding Property, plant and equipment -- IAS 16 The major issues disclosed here are The recognition of assets. determining the carrying amount (CA) of assets. Asset Valuations and Impairments: Here comes the standards to be followed with respect to acquisitions .Financial Accounting Standards (FAS) issued FAS 141 which prescribes the method to be followed with respect to purchases. Accordingly purchase method prescribed by the FAS 141 is followed by the company .The said standard is also followed with respect to treatment of goodwill and other intangible assets. Adoption of New Accounting Standards: The company strictly adhered to the new accounting standards with respect to the following areas of Federal Accounting systems. FAS 141(R) - “Business Combinations” FAS 159 - “The Fair Value Option for Financial Assets and Financial Liabilities” FAS 160 - “No controlling Interests in Consolidated Financial Statements Findings of the study 1) The organization is maintaining adequate books of accounts as required and also strictly adhering to the international accounting standards. 2) The organization is dynamic and so as to represent a true and fair view of state of affairs is taking note of changing accounting standards as per the board and incorporating to its financial statements. 3) Adequate disclosures and notes to accounts are given which are required for the better presentation of state of affairs 4) The financial policies adopted are so strong and are reasonably applicable to the present status of the company. 5) The company has fixed both short term and long term financial goals. Suggestions for improvement 1) The company should continuously take certain measures to make its statements much clear and enhance the credibility of financial statements. 2) The recommendations given in the auditors report should be considered and suitable changes should be made accordingly. References 1. M.K. Jain & Narang, Advanced Accountancy, Excel Publishers, 2001, P.210-225 2. Accounting –Concepts & Applications, Institute Of Chartered Accountants of India, ICAI Press, 2000, P.150-182. 3. Advanced Accounting concepts, Accounting For Managers, ICFAI press Publications, 2002, p.55-69. 4. Applications of Financial management, Financial Management for managers, ICFAi Press Publication, 2002, p.135-170. 5. R.L.Kapoor, Advanced Accountancy, Excel publishers, 2003, p. 201- 212. Read More