“Accountability breeds responsibility” – This is a famous quote by Dr. Stephen R. Covey gives the meaning of accountability in rather general terms. The concept of accountability can be defined as the process through which a person is held answerable for his actions and deeds. Under the umbrella of the organization the notion of accountability can be stated as the phenomenon through which whether a person at the higher level of hierarchy or at the lower level is accountable for his works and services that he renders to the organization. Accountability from the organizational perspective bears great importance as it is the measure through which the performance of the organization and a person serving can be judged and analysed.… Read the rest
Accounting Concepts
Convergence of Accounting Standards
The emergence of the accounting standards has been beneficial for the companies and the investors of the companies. The accounting standards help in the presentation of the financial information of the company in a format that can be understood by the investors of the companies. The investors of the companies are interested in the performance of the company and the financial results are referred to analyze the results. Therefore, the companies must be able to communicate information that is useful for the investors and the other related parties.
The emergence of the standards has been helpful in introducing uniformity of the presentation in the companies.… Read the rest
Qualitative Characteristics of Financial Information
Qualitative characteristics are the attributes that make financial information useful to users. The qualitative characteristics of financial information can be categorized as fundamental (relevance and faithful representation) or enhancing (comparability, verifiability, timeliness and understandability) based on how they influence the usefulness of financial information.
Fundamental Qualitative Characteristics of Financial Information 1. RelevanceRelevant financial reporting information means the ability of users (shareholder) to make a difference in their decision. Information regarding to economic phenomenon will help the users make a difference decision if it included predictive value and confirmatory value.
- Predictive Value: Information has predictive value if the value can be useful to the shareholder in predicting certain things that is related to future.
Top Down Approach for Audit of Internal Controls
The purpose of using the top down approach for an audit of internal controls is to allow the auditor to take a systematic approach to identify risks and select which controls to test. The top down approach begins with the auditor forming a general understanding of the entity and the industry in which it operates. This is accomplished by looking at the company’s financial statements, and acquiring general business knowledge.
The auditor then looks at the entity-level controls of the company to ensure that sufficient policies and procedures are implemented to recognize misstatements, due to error or fraud, in a timely manner so that material misstatements do not affect the financial statements.… Read the rest
Strategies to Resolve the Principal Agent Problem
The principal agent problem refers to difficulties of motivating one party the agent to act for the best interest of the other party the principal. In a company, the owners of the assets (the stockholder) are the principals and the managers of the company are the agents. The stockholders of the company authorize the managers to manage and use their resources to make profit for the stockholders. The cause of the principal agent problem is that the information asymmetry between the principal and the agent and the principal and agent have different interests. Generally, the Agents are the managers of the resources and have more information than the principals.… Read the rest
Parts of a Cost Accounting System
Cost accounting is linked to tax accounting, financial accounting and managerial accounting because it is an important component of each discipline as cost accounting involves determining the cost of something, such as a product, a service, an activity, a project, or some other cost object. These costs are needed for several purposes. For example, the costs of products and services produced and sold are needed for both tax and external financial statements. In other words, tax and financial accounting depend on cost accounting to provide cost information. Information about costs is also needed for a variety of management decisions. For example, cost estimates are needed to determine whether or not a product or service can be produced and sold at a profit.… Read the rest