Comprehensive Professional Portfolio - Assignment Example

Final Report (Comprehensive Professional Portfolio) Question 1: How does politics and regulation affect you as an accountant or in your future accounting role? There are different ways in which my future practice as an accountant will be affected by politics and regulation. These are as follows. First, my practice will be affected by new trends and developments in financial accounting that arise as a result of political pressure that culminates in changes in regulations. For instance, the trend in which business organisations are reporting how sustainable they are in their different areas of operation will affect my practice. Sustainability reporting provides an important convergence of politics and regulations. On one hand, organisations are realising that for them to achieve their long-term objectives, they have to take into consideration the needs and interests of all their stakeholders (Jones 2010, p. 12). This has led to organisations seeking to be responsible about their financial status, environmental needs and the social impact of their activities. These attributes are embodied in sustainability reporting, a new practice that is being adopted by organisations (Hohnen 2012, p. 2). It is important to note that this form of reporting differs from the conventional financial reporting method in terms of format and content. Therefore, as a professional accountant, I will be required to learn and understand the essential parts of sustainability reporting, regardless of the industry I will be working in. Secondly, my entire practice will be based on a general regulatory framework that is used for the accounting profession. The regulatory framework that is used in accounting is based on different theories, the most important one in current use being systems-based accounting theory (Deegan 2010, p. 129). My actions as a professional accountant will have to be informed by the law as well as adhere to the existing regulations. The regulations cover different aspects of the accounting practice such the procedures for reporting and making decisions about specific issues. What is important to note is that the process by which the regulatory standards are developed is influenced by different parties. Individuals, organisations, countries and lobby groups participate in the process of forming regulations and standards that are used to guide the accounting profession (Botzem 2012, p. 126). Therefore, I will be affected by the political and regulatory environment directly and indirectly. Lastly, political and regulatory forces will affect my practice as a professional accountant through the role that corporate governance plays in regulating and directing operations in organisations. Corporate governance refers to the way the boards of directors of companies provide leadership, direction and overall control to the management teams of their organisations. Currently, the regulatory environment is based on rules and procedures that recognise the fiduciary duties of directors of companies (Eccles & Krzus 2014, p. 124). Company directors are expected to play a key oversight role in ensuring that the interests of shareholders and other stakeholders of organisations are taken into consideration. As a professional accountant, my work will be scrutinised by the board. This means that my decisions and actions will be of great importance to the board. Therefore, the activities of the board of directors of the organisation that I will be working for will provide an important source of political and regulatory impact on my work as a professional accountant. Question 2: How has your perspective of accounting changed while studying ACCG399? There are several ways in which my perspective of accounting has changed after studying ACCG399. Three of them are outlined as follows. First, I have learnt that the existence of checks and balances is necessary to protect stakeholders of organisations from having to suffer the consequences of the occurrence of a financial scandal. I used to believe that the existence of ethical standards alone, as provided for in the professional code of ethics for accountants, is enough to ensure that professional accountants adhere to the rules that have been laid down. However, the case of Enron, in which professional accountants who were senior executives of the organisation colluded with other senior executives in engaging in fraudulent accounting practices, has led me to believe that checks and balances are necessary. Sundem (2003, p. 3) argues that the internal as well as the external regulatory environments are key aspects of an effective checks and balances system that can prevent the occurrence of financial scandals within corporations. I agree. As well, learning this course has helped me to grasp the role of ethics in the professional life of an accountant. I have learned that the decisions that a professional accountant makes really depend on their ethical consciousness and level of character development. In theory, ethics is said to play an important role in the lives of accountants because it forms the basis upon which accountants evaluate information and make decisions (Horomnea & Pascu 2012, p. 3 & Onyebuchi 2011, p. 275). Hence, the quality of the decisions and judgements that accountants make depends on the level to which the accountants understand and observe different ethical principles. From what I have learned in this course, I understand that the importance of ethics and morality in the professional lives of accountants is underscored by the fact that accountants face a lot of pressure from clients and other stakeholders to make decisions that can be considered unethical. It is under such circumstances that accountants rely on their personal ethical principles to avoid making decisions that serve partisan interests. Lastly, I have learned that much as accountants get pressure for clients and even employers to act in unethical ways at times, much of the pressure may arise from the personal motivations of the accountants themselves. According to the positive accounting theory, managers of a business organisation are motivated to act in ways that help them to meet their own self-interests (Van Mourik & Walton 2013, p. 46). Therefore, the decisions of the managers can be influenced by their personal prospects arising from the outcome of their decisions (Van Mourik & Walton 2013, p. 46). One area in which this is applicable is in the manner in which managers are compensated. According to Sun (2012, p. 115), the use of compensation schemes that include bonuses which are tied to the financial performance of organisations can easily influence managers and accountants to adopt reporting approaches that portray the financial condition of an organisation in a favourable manner. I have learnt that based on this theory, the remuneration scheme that is used can act as a motivating factor for performance or manipulation of figures. Question 3: How might accounting frameworks need to change in order to support our future society? The most important way in which accounting frameworks need to change in order to support the future society is through the convergence of the standards that are used to govern the financial reporting process. Currently, different countries have different types of rules and regulations that govern accounting reporting in place. This means that multinational organisations have to prepare different sets of accounts that adhere to the regulatory frameworks that are in place in the specific countries in which the organisations operate. This state of affairs presents organisations and other stakeholders with different disadvantages. For instance, presentation of information using different frameworks in different countries creates confusion among individuals and parties who use the information (Rathore 2008, p. 257). Furthermore, the use of different accounting frameworks in different regions means that organisations have to incur additional costs in the process of reporting their financial performance (de Bie 2012, p. 17). It is because of the factors that are associated with the different financial reporting frameworks that there have been efforts in the recent past to converge accounting standards. The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have led the efforts of converging accounting standards and frameworks, with the purpose of developing a single set of high-quality financial reporting standards that can be used across the world (Jeffrey & Perkins 2014, p. 182). In essence, convergence of accounting standards can be seen within the context of harmonising the regulatory and legal framework that is used in the United States and the framework that is used in rest of the world. The United States uses a regulatory framework that is developed and managed by the FASB while other countries use a regulatory and legal framework managed by the IASB. It is when these two sets of frameworks are harmonised that the financial reporting framework will be said to have been converged. Convergence of accounting frameworks in the form of creating a single set of universal accounting standards will support the future society in several ways. For instance, it will improve the free flow of investments in different markets across the world (Herz & Petrone 2005, p. 632). Currently, investors tend to invest in different capital markets across the world. Therefore, convergence of accounting standards will facilitate this trend by making it easy for investors to make informed investment decisions (Herz & Petrone 2005, p. 632). On the other hand, convergence of accounting standards will support the current and future society in which many organisations are accessing the global market. The existence of a single framework would reduce the costs that organisations have to incur in preparing different financial reports for the different countries in which they operate. Furthermore, when accounting standards that are used across the world are converged and standardised, it will be easy for auditors and regulatory bodies to make access financial information, process it and make informed decisions fast (Shil, Das & Pramanik 2009, p. 195). This will be different from what the situation is when the regulatory and auditing process is slowed down owing to the fact that financial reports have to be prepared using different frameworks. Question 4: Draw a parallel between social context and accounting with reference to the film “Frackman”. Is accounting helpful or harmful? The events depicted in the film “Frackman” represent different ways in which accounting is related to the social context. The film is a documentation of the efforts of an individual against the activities of corporations of expanding their mining operations using fracking, a controversial method. On one hand are the interests of the society. Dayne Pratzky, the character who leads an entire community to protest against the expansion of the coal seam industry in his local area in Queensland, represents the overall wellbeing of the society. On the other hand, the activities of the coal mining corporations represent capitalist interests that fail to take into consideration environmental and other concerns. It is by the use of financial accounting that companies are able to evaluate their financial performance and grow as corporations. Therefore, from the events that take place in the film, it can be inferred that there is need for social and other forms of needs to be taken into consideration in financial accounting methods. The question of whether accounting is helpful or harmful can be answered by examining the different ways in which accounting is beneficial or harmful. One of the most important ways in which accounting is beneficial is seen in its role in providing accurate information about the financial status of a corporation to its shareholders. Francis, Hasan and Wu (2013, p. 10) observe that the use of traditional accounting practices is not only beneficial to shareholders in that it helps them to get accurate information about the state of the organisation, but it also acts as a cushion against financial risks to other stakeholders. Another advantage of accounting is seen in the manner in which the information that is provided in the financial reports can be used to gauge the social impact of an organisation (Ruff 2013, p. 231). In current practice, organisations are increasingly concerned with addressing the different needs of their stakeholders. To this end, they seek to present their financial reports in formats that capture the social impact of their activities in addition to their financial status (Graffikin 2006, p. 6). To this end, accounting can be said to be helping business organisations to address the different needs of their stakeholders. On the other hand, financial accounting, as it is practiced, has several disadvantages. For example, different elements of financial accounting can be treated and presented using different formats. Elements such as the way income and assets are valued and measured can be treated either on a cash flow basis or an accrual basis (Elliot & Elliot 2011, p. 5). Furthermore, the manner in which assets and income are treated in accounting differs from the way they are treated from an economist’s point of view (Rao 2007, p. 14). These issues complicate the manner in which accounting statements can be interpreted and the extent to which valuable decisions can be made based on financial reports. Regardless of the shortcomings of financial accounting, it can be argued that its benefits far outweigh its limitations. The way in which accounting information is used within organisations and by different stakeholders is beneficial. The limitations that exist with regard to approaches to preparing financial information and interpretation of the financial information can be solved with time. References Botzem, S 2012, The politics of accounting regulation: organizing transnational standard setting in financial reporting, Edward Elgar, Cheltenham. de Bie, N 2012, ‘Convergence’ of accounting standards: challenge in accounting professionalism. 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Herz, RH & Petrone, KR 2005, ‘International convergence of accounting standards-perspectives from FASB on challenges and opportunities’, Northwestern Journal of International Law & Business, no. 25, pp. 632-660. Hohnen, P 2012, The future of sustainability reporting, viewed 6 November 2015, . Horomnea, E & Pascu, A 2012, ‘Ethical and morality in accounting: epistemological approach’, Journal of Eastern Europe Research in Business & Economics, pp. 1 – 11, viewed 6 November 2015, . Jeffrey, C & Perkins, JD 2014, ‘Developing corporate reporting in the public interest: the question of mandatory CSR reporting and the potential for its integration with financial reporting’, in S Mintz (ed), Accounting for the public interest: perspectives on accountability, professionalism and role in society, Springer, New York, pp. 177-200. Jones, H 2010, Sustainability reporting matters: what are national governments doing about it? viewed 6 November 2015, . Onyebuchi, VN 2011, ‘Ethics in accounting’, International Journal of Business and Social Science, vol. 2, no. 10, pp. 275-276. Rao, TEM 2007, Financial accounting, New Age, New Delhi. Rathore, S 2008, International accounting, PHI Learning, New Delhi. Ruff, K 2013, ‘The role of intermediaries in social accounting: insights from effective transparency systems’, in L Mook (ed), Accounting for Social Value, University of Toronto Press, Toronto, pp. 230-248. Shil, NC, Das, B & Pramanik, AK 2009, ‘Harmonization of accounting standards through internationalisation’, International Business Research, vol. 2, no. 2, pp. 194-201. Sun, L 2012, ‘Executive compensation and contract-driven earnings management’, The Asian Academy of Management Journal of Accounting and Finance, vol. 8, no. 2, pp. 111-127. Sundem, GL 2003, Ethics and financial reporting in a post-Enron environment, viewed 6 November 2015, . Van Mourik, C & Walton, P 2013, The Routledge companion to accounting, reporting and regulation, Routledge, London. Read More