Analysis
Discuss About The Financial Environment Business Development.
In this assignment, the financial reporting and corporate Governance topic is discussed and how important it is for the investors, the management and the auditors. There have been cases in the past that has been taken as a benchmark and that made it lot more important to have good policies in place. The corporate governance and the concept of ethical and social accounting has assumed great importance in the last few years. This is because both the management as well as the auditors are equally responsible for giving the reasonable assurance to the investors regarding the financial status of the company (Alexander, 2016). There have been cases in the past like the Enron scandal, the Wordcom debable and Lehmann Brothers where unethical accounting methods were being used under the nose of the auditor and the auditor has neglected the same and signed the aduit report thereby giving a wrong financial view to the investors. It is from there onwards the accounting boards and the regulatory agencies have started giving due importance to the concept of ethical, social and governance accounting. The sustainability report has also become a necessity for the annual report as the same reflects the company’s activities taken in consideration of the society. An overall analysis is being given in the analysis section (Bizfluent, 2017).
Financial Reporting and corporate governance goes hand in hand, there is a connection between the two which is apparent from the importance that is given to the audit of the financial statements and dependence of the stakeholders on the same. Corporate Governance refers to the fact that companies must work in such a manner that they are able to satisfy the needs of all the stakeholders that are dependent on the company. The stakeholders include the investors, the employees, the public, government etc (Dichev, 2017). It relates to sustainable satisfaction of all the related parties to the company. In previous time there has been various accounting scandals and frauds that have increased the importance of the financial statements and their presentation in a correct manner. These scandals mostly occurred because auditors failed to do their work properly and ended up presenting an audit report which lacked relevance to key matters and thus investors ended up depending on it to decide whether they will invest in the company or not. This was also because there were no proper rules and regulations to regulate the overall working of the auditors of the company, they did not have set standards which they could follow to see how they should present their audit report (Bromwich & Scapens, 2016). Thus, these scandals made people realize how important financial reporting is and more than reporting in the correct manner following the defined standards is that will lead to correct valuation of the books of accounts of the company. Thus, we see after such scandals many new rules were framed like the Sarbanes Oxley Act, the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 Cwlth (CLERP 9 Act 2004) was enacted, and these rules focused on increased amount of disclosures, better accountability, increased efficiency, more importance to the independence of the auditor was placed which was all channelized towards the single goal of providing better results to the stakeholders of the company (Farmer, 2018). It is very much clear that corporate governance cannot be achieved until there is better transparency, more reliability and auditors put more effort in presenting their audit reports to the best of their abilities. They aim to provide more protection to the auditors in a way that they can survive what is thrown at them from the management, these standards provide the basis on which the auditors can lay their actions and prepare their audit report,
Conclusion
In case there is any issues (Visinescu, Jones, & Sidorova, 2017). The people depend upon the audit report to judge whether the company is performing to the best of their abilities or not and in that situation, it becomes apparent that the quality of the audit should be the best and it should reflect the true of the company and there should not be any loopholes in that. There are various threats to auditor’s independence from internal and external sources and that includes pressure from the management, self-indulgence etc. The auditors depend upon the management for fees and thus there have been situations in the past where the management has asked the auditors to prepare the audit report as per their own convenience, hence the report is influenced and thus that poses a threat to the auditor’s independence. Apart from that also there are so many areas that poses a great threat to the independence of the auditor and for that these rules have been made, standard have been set which the auditor should follow to deliver quality results. All these helps in making the work of the auditors easy and help them in delivering best results which is not possible when there were no such rules to follow (Heminway, 2017). These scandals had occurred because of lack of that and thus people realize the importance of having a way with things so that the investors do not have to face huge loss in the future. Often, we see that there have been situations when these rules also do not help in that cases the auditors needs to check with higher authorities to deliver them what is required.
Corporate Governance aims to improve the situation of all the stakeholders and not just the investors, everyone is contributing towards the betterment of the company and hence each one has a say in that. Thus companies should try to make their operations better in every way so that each of them get their dues (Belton, 2017). They should follow the code of ethics to make sure that they are delivering their best to the clients. Financial reporting refers to the fact which exists and thus the aim should be that there should not be any undervaluation or overvaluation and people should get the exact position of the company through its financials. For this it is important that effort should be given in improving the quality of financial reporting, having knowledge of the standards to apply and follow and the data to be analyzed. Accounting policies and standards are there which companies should follow when they are preparing their financial statements. The auditor should audit the financial statements based on those standards so that there is no errors and thus better financial reporting will lead to better results and that in turn will help in comprehending to corporate governance that would help in improving client performance and the investors will get due returns of their money (Goldmann, 2016). The quality of audit depends on several factors and the auditor needs to consider all of that to make sure that in future there is no loophole in their work which may increase the chances of fraud. Most of the scandals have occurred because of this only. Thus, being ethical in approach and applying proper diligence is the key to success for the auditors when it comes to corporate governance (Vieira, O’Dwyer, & Schneider, 2017).
We have also seen in the past with companies like HIH insurance, ABC learning have collapsed big time due to the wrong repoting being done. Theses companies collapsed and were liquidated as they used the aggressive accounting techniques and tried to hide their debts in the name of the investments and acqusitions (Kuhn & Morris, 2016). No due diligence was being carried out and the concept of corporate governance as well as the transparency was being done away with as the financial statements did not show the true and actual affairs of the business and it was seen that the company was also giving the wrong and inflated estimations of the revenues and the profitability due to which investors suffered big time in the future when these scams were public.
Conclusion
From the above analysis and discussion it can be concluded that the corporate governance and sustainability are very significant and critical for the investors as well as other stakeholders as it helps to keep a check on the company’s activities and its financial position and results. The introduction of Sarbanes oxley Act and the increased focus on the transparency of the accounts is due to the fact that the many financial decisions depend on the company’s financial statements and how the auditors as well as the management is playing its role. That is why it is been correctly said that the transparency is the means of communication between the company as well as the interest parties. Besides this, the conceptual framework of reporting and the qualitative characteristics of the accounts must also be adhered to in the long run as it helps to improve the quality of the report. Some of these aspects are timeliness, reliability, comparability and understandability of the financial statement.
References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431.
Belton, P. (2017). Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd. Retrieved from https://www.routledge.com/Competitive-Strategy-Creating-and-Sustaining-Superior-Performance/Belton/p/book/9781912128808
Bizfluent. (2017). Advantages & Disadvantages of Internal Control. Retrieved december 07, 2017, from https://bizfluent.com/info-8064250-advantages-disadvantages-internal-control.html
Bromwich, M., & Scapens, R. (2016). Management Accounting Research: 25 years on. Management Accounting Research, 31, 1-9. Retrieved from https://doi.org/10.1016/j.mar.2016.03.002
Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), 617-632. Retrieved from https://doi.org/10.1080/00014788.2017.1299620
Farmer, Y. (2018). Ethical Decision Making and Reputation Management in Public Relations. Journal of Media Ethics, 1-12.
Goldmann, K. (2016). Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, 4, 103-112.
Heminway, J. (2017). Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, 1-35.
Kuhn, J., & Morris, B. (2016). IT internal control weaknesses and the market value of firms. Journal of Enterprise Information Management, 30(6).
Vieira, R., O’Dwyer, B., & Schneider, R. (2017). Aligning Strategy and Performance Management Systems. SAGE Journals, 30(1).
Visinescu, L., Jones, M., & Sidorova, A. (2017). Improving Decision Quality: The Role of Business Intelligence. Journal of Computer Information Systems, 57(1), 58-66.
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