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Contemporary issues in Accounting and Finance

June 1, 2015 barbradozier

Current Issues in Accounting

Name

Institution

Introduction

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

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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 (Keĵ, 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

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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 (PraĴ, 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.

Conclusion

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.

(1344)

Bibliography

Harris, P., 2007. Accounting and Financial Management. Boston: Pearson Books.

Hines, R. D., (2014). Financial Accounting: In Communicating Reality, We Construct Reality. Accounting.
Organizations and Society, Vol. 13, No. 3, pp. 251-261.

Hoogervorst, H., (2013). Building Trust in Financial Markets: Accounting And Moral Hazard, Sydney: Ken
Spencer Memorial.

Keĵ, E., 2006. Accounting Ethics: Theories of accounting ethics and their dissemination. New York: Taylor &
Francis.

Keeton, T., 2006. Ethics for today, 4th ed.. New York: American Book-Stratford Press.

Lahey, W., 2012. Self-Regulation and Unification Discussions in Canada’s Accounting Profession. Oxford:
Dalhousie University.

Mayhew, B., 2003. Do Non-audit Services Compromise Auditor Independence? Further Evidence. The

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Accounting Review, 70(3), pp. 611-639.

McGregor, W., 2014. IFRS Conceptual Framework: The cornerstone of high-quality financial reporting. Western
Sussex: John Wiley & Sons Ltd.

Morgan, G., 2014. The New Accounting Research: Making Accounting More Visible. Accounting,
Auditing, and Accountability Journal, pp. 3-36.

Mirza, A. A., 2010. Wiley IFRS: Practical Implementation Guide and Workbook. New York: Wiley & Sons.

Needles, B., 2013. Principles of Financial Accounting. London: Cengage Learning.

Opperman, 2006. Accounting Standards. London: Juta and Company Ltd.

PraĴ, J., 2013. Financial Accounting in an Economic Context. New York: McGraw-Hill.

Rodriguez, M., 2013. Accounting for Infrastructure Regulation: An Introduction. Washington: World Bank
Publications.

Parker, R., 2012. Towards a Theory and Practice of Cash Flow Accounting. London: SAGE Publishers.

Preinreich, G., 2009. A Landmark in Accounting Theory. New York: Taylor & Francis.

Staubus, G., 2012. The Decision Usefulness Theory of Accounting: A Limited History. London: Routledge.

Wahlen, J., 2010. Financial Reporting, Financial Statement Analysis and Valuation. London: Cengage
Learning.

Wolk, H., (2011). Accounting Theory: Conceptual Issues in a Political and Economic Environment. New York:
SAGE Publications.
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