Current Issues in Accounting
The issues of corporate governance such as corruption, bribery, growth and strategy, succession planning, IT governance, and financial regulatory framework is the focus of the regulators and policymakers. The regulators seek to make ensure that there is accountability, transparency, and shareholders participation on boardroom decisions (Harris, 2007, p10). The policymakers should make ensure that mergers and acquisition, climate change and sustainability, proxy access, and executive compensation are regulated. The rules and regulations should be developed to make ensure that these issues are addressed since they affect business performance. Similarly, there are concerns about the fair value accounting as the concepts treats operating businesses inappropriately (Morgan, 2014, p22). The security view and banking view are the main concerns. The banking view entails the businesses that generate net cash flow over time; however, the security view are concern raised by security brokers whose activities is selling securities (Staubus, 2012, p31).
Therefore, the policy makers should make ensure that these issues feature in their reform plans. Moreover, tax avoidance and evasion affects ability of the country to offer services to the society and businesses. Regulators should seal the gaps that enable tax evasion and avoidance by the corporation. Tax avoidance and evasion stagnates the living standards (Preinreich, 2009, p55). Moreover, tax evasion and avoidance results to corporate governance issue such as corruption. Inherently, a robust set of rules and concepts should be developed to show the underlying economic situation (Wahlen, 2011. p.13). It can be observed that the institutions and persons mandated to develop the accounting rules and principles based on consensus in practice and not eliminating the undesirable practice.
Financial reporting and accounting standards were based on vague conventions and principles, before advent of the conceptual framework (Mayhew, 2006, p77). The principles such as prudence, fair view accounting, historical cost, matching, conservatism, and earning process were difficult to understand. This provided loopholes for the auditors and accountants to proffer false reporting on the financial position of a firm. Notably, the frame of reference has been on the personal and implicit help conceptual framework (McGregor, 2014, 56). Consequently, the decision tends to be inconsistent, ad hoc, and unrelated. Reviewing the conceptual framework proffer the opportunity to translate the relevant concepts. This is critical in reducing the perceived differences and strengthen the existing conclusions to be consistent at the standard level. The policymakers should strengthen the current policy requirement on fair value accounting and its extension to the financial instruments (Wolk, 2011, p46.). They should make ensure that the firms make mandatory disclosures, as well as, encouraging them to voluntarily make disclosures of their unrealized fair value losses and gains.
Policymakers and regulators mandated to develop new rules and regulations should make ensure that they name the measurement basis, fair value accounting, and corporate governance is factored in the reforms (Preinrich, 2009, p46). They should make ensure that public corporation share information to the public, such the profit and loss accounts. This is critical since it will offer useful information for the users of the financial statement. Moreover, the current framework does not have the sections that elaborates on the disclosures and presentations (Opperman, 2006, p70). This is a critical area they should look the existing problems are facing while developing disclosure and presentation issues. Disclosure concepts should be based on higher levels of the framework. Arguably, the role of business models is pervasive in financial reporting; they have competing theories such as the theory of the firm (Parker, 2012, p.45). The economic theory assumes that the business environment has no fraud, transaction cost, and market information is perfect. Similarly, the theory of the firm argues that accounting is a means of decreasing transaction cost. The problem with these theories is the measurement issues
Hoogervorst (2014) says that the root of the problem in the current accounting policies and principles lies on the moral hazards of the financial markets. The credit and capital market are rife with the agency conflict. Therefore, the auditors and the accountants use the loopholes to commit fraud. The conflict of interest affects their productivity and performance of the firm. Lack of transparency and fraud is a scourge that is destroying the financial market. The current financial crisis provides insights to the risks unprecedented to market boom and financial institution. Therefore, reporting standards requires transparency, quality, and comparable information.
I believe that measurement of the elements needs changes to make cerain that they are descriptive and not inspirational (Ketz, 2006, p406). The international and national institutions mandated with developing new rules and regulations should make ensure that they name the measurement basis. This is critical since it will offer useful information for the users of the financial statement. Moreover, the current framework does not have the sections that elaborate on the disclosures and presentations (Mirza, 2014, p70). This is a critical area they should examine given the existing problems are facing while developing disclosure and presentation issues.
Needles (2013) says that accounting policies should be able to solve agency problem. The agency problem is a concept based on the issues that arise since the business are managed by the Directors who are not owners of the business but represent shareholders who are the real owners. The problem arises when the agents do not agree with the shareholders on how the firm should be run due to different perception and analyzes view (Hoogervorst, 2014, p29). The auditors engage in frauds by failing to raise the alarm, despite clear rules and guidelines. The auditor is protected by their work ethics and terms of employment, which states that an auditor is not a bloodhound and neither a watchdog. The managers are responsible for detecting the risk of fraud and controlling them (Rodriguez, 2013, p25). These give management a chance to misappropriate the resources. To solve cases of fraud, the regulator should make sure that they offer guidance revolving around principles and not setoff rules that are developed, but can be sidestepped. The total ban on non-audit services to the audit client is insufficient to guarantee independence of an auditor.
Therefore, changes in the framework should include examining preparation of auditor report. The regulators should certify that the developed policy encourages the boards to reach out to the shareholders of the company for their advice in decision-making. They should make sure that corporation conduct meetings to discuss the issues in the company with the shareholders (Lahey,2003, p25). Improved shareholder communication and engagement in the affairs of the company is critical. Auditing is regulatory framework fails to accommodate public interest as its independence can be compromised. It is important to safeguard the Auditors independence for them to give a fair true view of the accounts. In contrast, the lack of independence offers false information to the consumers and investors (Pratt, 2014, p.55). To make ensure independence is maintained, IFRS should introduce regular mandatory of rotation of the Auditor, unlike the current system where the Auditor is removed from office by reason such as incompetence. Moreover, technology in accounting should be embraced since they have proven scientific measures. The Auditors should use it to improve accountability and transparency.
The issues of corporate governance such as corruption, risk management, shareholders participation, and mergers and acquisition should be reviewed. The financial market is affected by tax avoidance and evasion; hence, the regulator should make ensure that proper policy is developed. Financial reporting and accounting standards were based on vague conventions and principles; hence, need for new policies. Independence of the auditor is an issue that the policy makers should focus on to seal the lapses. Moreover, regulators should review outdated principles such as prudence, fair view accounting, historical cost, matching, and to enhance their effectiveness. The auditors and accountants to have exploited the loopholes in these principles and offer false reporting on the financial position of a firm. Prevalence of fraud in firms affects the business performance and the financial market. Clear rules should be enacted to ensure that the auditors become part of the financial regulatory entity; inherently, they should act as a watchdog.
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