Management Accounting

Artificial Intelligence (AI) and Accounting

The term artificial intelligence was first coined by John McCarthy, in 1956, during an interdisciplinary workshop of researchers at Dartmouth. This team of researchers developed the concept of “thinking machines”, which included automata theory, complex information processing and cybernetics.

In the mid-to late 50s, General Electric became the first company to purchase a computer to process its payroll system, the UNIVersal Automatic Computer(UNIVAC). UNIVAC ran payroll in all of GE’s factories and stored data on magnetic tape instead of punch cards. The UNIVAC took 40 hours to complete the entire payroll process. During the 60s the U.S. transportation industry developed an electronic data interchanges to standardize transactions between vendors and customers.… Read the rest

Abey Francis

Audit Risk – Definition, Formula and Models

Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. In simple terms, audit risk is the risk that an auditor will issue an unqualified opinion when the financial statements contain material misstatement.

ISA 200 states that auditor should plan and perform the audit to reduce audit risk to an acceptably low level that is consistent with the objective of an audit. (Auditing and Assurance Standard) AAS-6(Revised), “Risk Assessments and Internal Controls”, identifies the three components of audit risk i.e. inherent risk, control risk and detection risk.

Audit Risk Model: AR = IR x CR x DR

Where,

  • AR= Audit risk (the risk that the auditor may unknowingly fail to appropriately modify his or her opinion on financial statements that are materially misstated)
  • IR = Inherent risk (the risk that an assertion is susceptible to a material misstatement, assuming there are no related controls) :  Inherent Risk is the auditor’s measure of assessing whether material misstatements exist in the financial statement before considering of internal controls.
… Read the rest
Abey Francis

Budgetary Slack – Definition, Causes and Prevention Methods

Meaning and Definition of  Budgetary Slack

In an organization when a manager is responsible for planning incomes and expenses for the a future period, they can plan income very low and expenses very high so that this amounts gets approved by senior management. The manager basically does this thing to be sure of meeting the budget with a very low income goal, the manager should be able to achieve it and go over it. With a very high expense budget the manager should be able to easily keep actual expenses within the Budget. If this happens the managers performance in the coming year will look very good, as it doesn’t really give management any idea of what the coming year will actually look like because it’s not realistic.… Read the rest

Abey Francis

Audit Theories – Theories of Demand for Audit

Audit refers to an examination of the financial reports of a firm by an independent entity. The separation of business ownership and management in modern society has created a need for accountability; causing the role of audit to change as the needs of stakeholders’ change. Audit, in itself, caters to the relationship of accountability; independent from other parts of the firm to provide a true and fair view of the financial reports of an organisation. Whereas, the ‘value relevance’ refers to the auditors’ ability and responsibility to provide reasonable assurance that financial statements are free of material misstatement, either due to fraud or error; or both.… Read the rest

Abey Francis

The Objective of Financial Reporting

The main objective of financial reporting is to provide financial information to current capital provides to make decisions. This information might also be useful to users who are not capital providers. The general purpose financial reporting develops superior reporting standards to help in the efficient functioning of economies and the efficient allocation of resources in capital markets. General purpose financial reporting focuses on an extensive range of users’ needs that lack the ability to obtain financial information needed from the entity. It should be broad enough to comprehend information for the various users. Therefore, the financial report is where they depend on to acquire information.… Read the rest

Abey Francis

Traditional and Modern Innovative Management Accounting Practices

In last many years, few management accounting innovations has been developed. Managers have to make decision on a daily basis as well make decisions regarding the future and how to survive and grow in an energetic market place with ever growing uncertain circumstances. Traditional and modern management accounting system give relevant information to all levels of management, financial and other information to make decisions about planning, control of operations and identifying opportunities to add value.

The modern management accounting practices are typically different from that of traditional management accounting as they enable managers to make sound decisions to minimize cost as well in the same time add value to the products and services by improving the quality of products, which is required by the customers, and reduce waste.… Read the rest

Abey Francis