I need an explanation for this Business question to help me study.
I need four responses of at least 200 words each for the below students discussions for this week. Also in the bold below are the questions the students at answering.
Unfortunately, auditing is not necessary for effective financial reporting. Do you agree with this statement? In 300 words, defend your position.
After reviewing this statement, I am going to have to respond with a resounding no. It is absolutely important for the financial activities of a business to be kept track of. This is how you avoid incidents of the illegal kind which would be bad for the boss who could possibly be unaware of such actions. The accountability of a company must be a thing, otherwise, who knows what kind of shenanigans they could get away with?
Audits allow for an outside look at a company to ensure everything is legit with the company. This is to see to it that every transaction is recorded as to avoid any off the record transactions which is common occurrence believe it or not. The process is different for small time companies who only receive one review per year while big time companies require multiple audits which are done by the accounting staff. Now the accounting staff can deliver two types of opinions: unqualified and qualified. Ironically, unqualified opinions happen when the auditors believe the company is following all the accounting rules . Once this has been established, the statements are then made official. Qualified opinions have the opposite effect as this is when errors are found. As a result, auditors will then report a possible violation of the GAAP and what should be on the inside to rectify the situation. Until those corrections are made, auditors will not be inclined to sign off on anything.
Auditing financial statements are important for potential investors and economists alike as it assists them in deciding whether or not a company is truly in good financial standing by legitimate means. It mainly protects investors from making bad investments in shady and untrustworthy businesses. Auditors should not be seen as the enemy as their reports are only done in order to discourage and reduce the likelihood of fraud or corruption within a company as these kind of things should be frowned upon. Ultimately, these precautions are more than necessary for effective financial reporting and I feel it would be unwise to think otherwise.
Retrieved from https://www.investopedia.com/terms/a/audit.asp
Vitez, Osmond. (2019). Purpose of Auditing Financial Statements Retrieved from https://bizfluent.com/about-5179679-purpose-auditing-financial-statements.html
In regards to global business, the International Accounting Standards Board (IASB) sets forth and manages the International Financial Reporting Standards (IFRS). These standards provide guidelines for businesses on how to report different different transactions and financial events within their organization. (Lumen Learning, n.d.) Financial reporting is extremely important, and aims “to provide financial information that is useful to others in making decisions related to providing resources to the entity.” (International Accounting Standards Board [IASB], 2018) This is done a number of ways, including four very important financial statments: income statement, balance sheet, statement of retained earnings, and statement of cash flows. (Lumen Learning, n.d.) Unfortunately, these four financial statements may not always be accurate, whether intentional or unintentional, and can cause many problems for the business as well as investors. One way to verify the reported information is to perform an audit, which could be internal or external.
Internal auditing is done inside the company and generally focuses on efficiency matters. External auditing is done through a licensed professional that has no ties to the company, which in the United States is a Certified Public Accountant (CPA). (Lumen Learning, n.d.) External auditing helps to take some of the bias out of the audit itself and the objective “is to enable the auditor to express an opinion on the financial statements if they are prepared in all material respects under a financial reporting framework.” (Vasile, E. & Gruia, P., 2018) By following a set of guidelines and standards, the auditor is allowed the ability to objectively report their findings regarding the company’s financial statements.
In my opinion, it is extremely important for a company to engage in external auditing of their financial reporting. I also feel that it is 100% necessary for auditing to occur if a company wishes to keep their financials in check and steer clear of any financial scandals. It is an essential part of business in general and should be considered a necessary means for keeping the company financially healthy.
International Accounting Standards Board. (2018). Conceptual framework for financial reporting. Retrieved from www.ifrs.org/-/media/project/conceptual-framework/…
Lumen Learning. (n.d.). Accounting and taxation in global business. Retrieved from https://apus.realizeithome.com/RealizeitApp/ContentDelivery.aspx?Token=aNYykCmNB67yN6Ic%2fr3Mj2qlur0E6s4Unlk%2f3SsUN5gvwM5YzGjCp%2f%2bWACnEZ31aKE6lseTj1idL6kJcoii2QtmHn7y2fx4Dj8xEbv96uIveh26G7q7sSdzFIRxTYUol82fSXYOEh8AM1r23T94BCTKe4Gh8ycZyk9FgzZExuqy%2bHSyoXZxgQzfZazFrrcTMCJVBtkkmC1Fd9BrX0YHHUPXblsBlVRuC0HULyusqvCEsrC9UERIebfQRlMxKiE3gZ%2fGL9RXPw0yWSaB67wECr3Yxnrq%2bDtYk3EyK4w6gk1QEIBZK5Ye4PnEL0yUw50NzevdwOOE97FTovi3YPpObjy9MR7%2flNJyT2Cn3h72x7OiD6JkLdK8Yji%2fIN5tiTZzXLuturSjqDfHuuXoyVJOqJgboXIEJVSrh0YQvuXh8wH2IJF1S5KT1fdJT8tPx6pgRLlx5Qog9XrHC7QVFxOOI8T1ufcGBji%2bZIru4HYvZcl4%3d
Vasile, E. & Gruia, P. (2018). The importance of financial accounting auditing in the identification of economic criminal activities. Audit Financier, vol XVI, no 3(151), 398-406. doi: 10.20869/AUDITF/2018/151/019
People tend to mess things up from time to time. When it comes to the financial side of a business, it can happen on purpose or it can happen because someone made a mistake. It’s important for businesses to take steps so that their shareholder can feel comfortable about the numbers that are being reported. For this reason, I do not agree that financial auditing is not necessary for affective reporting.
There are two main types of auditing; internal auditing and external auditing. Internal auditing takes place from an agent within the company who will look at various aspects of the company to see if it is operating properly or if it can be improved. These reports are viewed by the leadership within the company and a determination is made on whether or not changes are needed to meet external auditing standards.
External auditing can only be performed by Certified Public Accountants who are operating independently from the company. They must submit their findings using specific forms, unlike the internal auditors who can submit findings in any format. External auditors, in my opinion, give a better sense of direction on a company for its shareholders. There is a lot less of a chance of tampering with external auditing results.
Auditing fraud goes back years. In 1938, McKesson & Robbins, a drug company, was caught after they tried to fake 20% of its assets. K-Mart even convinced “big suppliers like Coca-Cola and Kodak to report promotional payments before they were actually paid.” (Fisher, 2011) They were able to do this by threatening to pull their products if things didn’t go the way they wanted. Luckily, this information came out and shows us just how far companies will go to make themselves look better on paper. External auditing is a big way to keep companies honest.
ACCOUNTING AND TAXATION IN GLOBAL BUSINESS. (n.d.). Retrieved from https://apus.realizeithome.com/RealizeitApp/ContentDelivery.aspx?
Bragg, S. (2019, July 9). The difference between internal and external audits. Retrieved from https://www.accountingtools.com/articles/the-difference-between-internal-and-external-audits.html.
Fisher, D. (2012, July 8). Scamming The Auditors Is As Simple As Cut And Paste. Retrieved from https://www.forbes.com/sites/danielfisher/2011/11/08/scamming-the-auditors-is-as-simple-as-cut-and-paste/#4177b482a432.
This week’s post propounds that auditing is not necessary for effective financial reporting. I disagree with this statement. An audit can be defined as an intricate examination of the financial reports of an organization. It is used to reassure various stakeholders than an organization’s accounting reports are accurate. This task is usually done by a CPA who accumulates and evaluates a company’s accounting records. Audits can be internal or external.
An audit serves several purposes which ensures effective financial reporting. Firstly, an audit ensures compliance. Most industries have statutory requirements (Sanghavi, 2019). An audit gives both the organization and stakeholders the peace of mind that the organization is compliant. On the other hand, if an organization is non-compliant then there will be fines, damage to the firms reputation and damaged to customer relationship (Sanghavi, 2019).
Another benefit of an audit is business improvements. An audit is an in dept look into the internal systems and controls within an organization. The insight gained can be used to identify arears for improvement. An audit can identify deficiencies in accounting practices, governance, culture and business systems (Sanghavi, 2019).
Credibility is another result of an audit which makes an audit necessary for financial reporting. An audit is an independent and impartial verification of financial statements. The results are a “true and fair” representation on an organization’s current situation. Therefore, investors, stakeholders, customers, lender and other entities can use it to establish credibility (Sanghavi, 2019).
An important benefit of an audit which cements its importance is its ability to detect and prevent fraud. An audit can detect fraud, errors and corruption. An auditor an detect weakness and establish the systems and controls needed to eliminate these areas of risk (Sanghavi, 2019). A major part of an audit is the analysis of financial transactions. While doing so an auditor will go over income, assets, liabilities and expenditure. This step can be used to provide insight to improve financial planning, budgeting and financial decision making.
An audit is an immeasurable tool for any organization. It provides insight, direction and credibility.
Sanghavi, B. (2019, January 29). Top 5 Benefits An Audit Provides. Retrieved from https://www.uhyhn.co.nz/2019/01/29/top-5-benefits-an-audit-provides/.