Need for International Reporting in Inconsistencies - Coursework Example

Topic: company accounting Name: Lecturer: Course name: Course code: Date: Introduction The major aim of this article is to articulate of the concept Australian and international accounting conceptual framework. It analyses and identifies confusion in breezing of the conceptual framework[Boo03]. Also it reflects the manipulation of the accounting data by the company management and extend to which the manipulated data mislead the users of accounting records. Manipulation is being reflected by the inconsistencies of accounting data, the variation of accounting data reveal the unreliability of records of the organization The theme of inconsistency that comes as a results manipulation of entries shows initiative reflection of bankruptcy, insolvency and the element of fraudulent theme in the organization[Chr09]. The falsified accounting records can be the act of management to hide the company stakeholders the crooked transactions they are engaged in and secondly the fallacious data can be done by the board of directors to protect the reputation, goodwill and to maintain their major customers from essence of insolvency and bankruptcy that data may reveal about the entity[Jay09]. By the act of the company being incapable of meeting or honoring its obligation the resultant battle is to alter the accounting data thus this brings inconsistencies in the accounting data. According to the international accounting standard board (IASB) framework, there should be define tradition of accounting financial reporting structure[Jim04]. U.S accounting standards provide a framework that hunt for consistency, transparency, relevancy and reliability of accounting information. Foundation strengths of accounting standards should have comprehensive sets of rules and principles governing the representation of accounting information that requires the consistency, comparability, reliability and relevancy of accounting information. The Financial Accounting Standards Board (FASB) envies a conceptual accounting framework as a consistent system of unified aims and basics that leads to reliable accounting standards that stipulates the purpose, nature, and limits of financial statements and financial accounting. For the setter’s Australian standard, their prime reason of the conceptual framework (CF) was act as the ‘guide’ in rising and reviewing accounting standards[Haa05]. The International Accounting Standards Committee (IASC) moderates the role of a conceptual framework furthermore acknowledging that some of accounting standards are inconsistent to the rules and procedures stipulated by framework. Although the Australian Accounting Standards Board (AASB) purportedly follows the policies of harmonizing conceptual frameworks and accounting standards, inconsistencies in the conceptual frameworks of the IASC are still acknowledged. International accounting framework personify difference in accounting records as fictitious alteration of accounting statements to suit the need of the management and the stakeholders of the company[Hua05]. The act manipulation of accounting records is illegal to accounting standards, the management manipulates their records to evade tax payment or reduce the tax liability, to defend their incapacitation in meeting their obligation liability and the liquidation of the company. Manipulative disclosure on the income statements is categorized earning management – this refers to manipulation of the accounting results to suit the business impression and abusive earning organization which involves distorting of companies’ financial performance to attain the desired results. Management can also alter the accounting records to window kit their stakeholders i.e to gather for a instant drop of companies retain earnings the management can decide to sale their assets[Hua05] to gather for the change in the graph of earnings. Manipulation of accounting information is can be attained through accounting operation decisions and operations and fraudulent financial reporting that mislead the facts about the firm. Auditors have a multitude of task to eradicate the fraudulent misrepresentation of accounting information. Accounting decisions refers to complete identification of the observable facts and acts, the extent of their effects on the company net assets and performances, level of accounting gratitude, presentation and full disclosure of the companies’ financial position[Mou04]. The opportunistic nature of nature of stakeholders uses the principle discretion to deceive the users of financial data and information by kitting their financial performances. The financial reporting failures amplify confidence of external investors in financial markets thus increase the dependencies of the investor’s also corporate management in particular. Due manipulation accounting information, stakeholders are misled by falsified financial reports[Jim04]. The financial reporting structure oversight has a number of detach and co-dependent elements that regulate the principles of the standards, including dynamic assertive oversight that involves; private segment standard-setting processes, registrants' financial reporting standards and self-regulatory ideals exercised by the accounting expertise. For each of the essential elements enhance success in favor of high quality financial reporting framework[Chr09]. These oversights emphasize the development of excellence auditing and accounting standards and protect the investors from depending on records full of manipulation. It also gives unbiased third party analysis of self-regulatory activities[Jay09]. The authoritarian oversight stipulates fortification of accounting standards by involving the auditors in a rigorous and reliable manner to help in ensuring quality audit purpose. This facilitates transparency in accounting data while boosting the dependency ratio of accounting statements. Need for International reporting in inconsistencies The merit behind developing international reporting standards is characterized by growth of private sector and limits the risk of investors relying on the manipulated and inconsistent information[Ash09]. The reporting standards effect the following changes caused by inconsistent accounting records; a) It strengthens the countries monetary structural design and limits the risk of financial market crisis together with their related negative fiscal impacts. b) Contributes foreign direct and portfolio investment in international and local markets. c) Facilitates the ease access of smaller-scale business credit borrowers from the formal financial segment by limiting barriers bulky information required and high cost of borrowing. d) Allows investors to evaluate company projection and make well informed design investment after viable decisions consulted hence results in a lower cost of capital and better resource allocation. e) It helps to stabilize and mobilize domestic savings thus resulting high economic growth Conceptual Framework for financial reporting The principle underlying presentation of financial statement framework is to faithfully represent the financial reports in true and acceptable way. This is arrived at by materially presentation of account data in favor of the users of accounting information. In addition, specific disclosures is required in regard to material uncertainties about the entity’s aptitude keep going as a going concern[Boo03], the exposure of hazards and fear of uncertainties to the users that rely on the financial information to understand better the entity’s statement of financial position, financial performance and cash flows statements. Users of financial data depends on the reflection of the companies reports hence if the reports is full of inconsistencies of entries the users will act as per the data provided Users that can suffer from inconsistent data provided a) Investment analysts- the analyst need financial information concerning to an entity to evaluate the risks involved and returns related with the entity in order to resolve whether to invest in the company or not basing on the findings in the financial information. b) Competitors – competitors requires financial information of the entity to assess the risk involved to sales and profits posed by the business and to give a benchmark against which competitor’s performance can be articulated. Basing on the articulation benchmarked the competitors would identify the strategy to amend in achieving its competitive advantage. c) Managers require financial information relating to an entity to help make managerial decisions and strategic plans for the business and to implement controls so as to earned its fruits. Constraints on financial reporting The pervasive constraints limit the information provided by financial reporting are[Chr09]; Materiality, accounting Information’s is material if their omissions in financial statements influences the decisions made that users rely on making decision on the basis of an entity’s financial information (ISA400). The materiality depends on the nature and amount of the item reviewed in the particular circumstances of its misstatement; it is impossible to stipulate a consistent quantitative threshold at which a particular type of information becomes material. Cost, Financial reporting should substantiate their imposition of the cost to assess whether information justification has quantitative benefits[Hua05]. Also the cost of collecting the financial data and processing them to arrived at reports should be itemize to give the best returns of material information that can be used to limits the inconsistencies in accounting reports. Types of inconsistencies in financial information 1. internal inconsistencies This are inconsistencies that are that are develop within the business framework (ISA700). Management are the key developers to alter the books of accounting information, the manipulated data develop within the organization contradict with the requirements of the international framework. The inconsistent data created within the entity is meant to deceive the users for the benefit of the organization. Business entity is required to abide to the requirement of the framework to enhance consistency as per the accounting standards. 2. Atomicity inconsistency It also refer to as transaction inconsistency, It involves a logical work of alteration of accounting database within the organization. This consistency can be effected by the management to department handling money to falsify the accounting records of the business hence deception of potential investors of the company[Mou04]. Transaction consistencies apply to the effect programs. The programs are altered to incompletely detect the transaction circle hence there will be lack of complete check of accounting transaction. Recommendation and conclusion The inconsistencies to International and Australian accounting standards framework should be treated as fallacious records and thus restriction to the publication of inconsistent data should highly illegalized (Ashwinpaul C. Sondhi 2009). The Framework should set the key consequences to eliminate the inconsistencies and safe the users of accounting information of from being deceived by manipulated information. Reference list Boo03: , (Booth, 2003), Chr09: , (Christensen, 2009), Jay09: , (Jay S. Rich, 2009), Jim04: , (Jim.C. Leisenring, 2004), Haa05: , (Haase et al., 2005), Hua05: , (Huang et al., 2005), Mou04: , (Mourik, 2004), Ash09: , (Ashwinpaul C. Sondhi, 2009), Read More