Basically, accounting controls are operational, financial, or technological mechanisms used by businesses to ensure or encourage a particular behavior or result. In accounting, such policies and procedures are frequently summarized in an Accounting Manual, which specifies the who, what, when, and how of common accounting procedures and activities. o Formally document policies and procedures governing payroll processes detailing timelines, responsibilities, actions, responsibilities, etc o Access to add, modify, delete records from the employee master file is restricted to appropriate personnel.
Financial Closing or Reporting- To ensure that financial data is recorded, consolidated, and reported accurately, timely, and in compliance with US GAAP.
Understanding the underlying concepts behind basic accounting controls will allow you and your organization to create an internal control structure, both within accounting and beyond, that enables more effective and efficient operating and financial results.
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Learn Accounting - Understanding Basic Accounting Controls
The paper is an examination of the effects of accounting choices on users of financial statements. It was found that most researches normally dwell on single characteristic effects of accounting decisions on financial statement users.
There are a number of users of financial statements within any respective firm. Usually, some of the intended effects of accounting choices can become real effects.
A lot of research has been done with regard to voluntary accounting choices. Secondly, such accounting choices may be motivated by strategic objectives within the corporation under consideration.
Managers tend to use income increasing tactics when there are interested in enacting strategic changes.
On the other hand, when managers make accounting decisions to decrease their overall incomes in their financial statements, then employees are much more likely to believe the latter results than if incomes had been increased.
In close relation to income decreasing or income decreasing acts in financial statements is the issue of qualification in making accounting decisions.
There is a need to compare financial statement user reaction to income increasing and income decreasing changes in comparison to reference point.
Financial statement users are likely to remain indifferent to changes made by their employees in the event that the accounting decision is an income decreasing one but a qualified one. Expert opinion suggests that financial statement users are much more likely to believe them if they are qualified.
This means that a number of users of financial statements view accounting choices as means against which firms can get incentives.Healthy and financial firms often find that they have to make accounting decisions.
One of the drivers of accounting decisions in financially distressed firms is the issue of debt covenant isolation. Financial debts are a particularly pressing issue for such firms and it is likely that their accounting choices can be adversely affected by these decisions and vice versa (that the accounting choices they make can change their prevailing situations)
In other circumstances, firms facing financial distress may be motivated to make accounting decision that can subsequently affect their jobs or their firms altogether.
In other circumstances, forms undergoing financial distress may be motivated to make accounting decisions in order to cope with management changes that may have occurred at the time. Usually, such firms are likely to make accounting decisions that would affect them in a positive light by making them liable to receive incentives from the investigators.
With regard to accounting decisions and the effect that the choices have on financial statement users; a number of researches have also been done on the user expectations.
Interest risks that come with securities are also an important factor in determining effects of such accounting decisions.
Financial statement users are adversely affected by the accounting choices made within certain firms. One such group are financial investors. Research has shown that the manner in which financial statements are presented to non processional financial statement users such as investors has a very important role to play in influencing their choice to invest in that respective firm. Consequently, firms that may be in unhealthy situations may be affected positively by making such an accounting choice.
It should b noted that a number of financial statement users are highly affected by the accounting policies in certain firms or the level o adoption of accounting standards. This factor is quite important in accounting decisions and hence accounting effects because only has to look at accounting policies of a number of developed nations to understand this.
- Improves financial statement credibility There is a need to look at how effects of accounting choices can intertwine and hence affect the way a firm comes to make its respective decisions.
- Management change
- Government negotiations
- Labor union contracts
- Dividend reductions
- Employees
- Government representatives
- Financial analysts
- Creditors
- Investors
Public accounting can greatly improve if there was a way in which studies differentiated between healthy and unhealthy firm so as to ascertain that the process of auditing financial statements made by either firms an be clearly distinguished.
Form the latter study; it was found that there are a series of effects that accounting decisions can have on users of financial statement users. For instance, some users may be influenced to invest in a certain firm if the statements are positive. Additionally financial statements may cause governments to support firms through subsidies. In other scenarios, it is possible to find that accounting decisions can cause renewal of contracts by labor unions.
In other situations, accounting decisions can cause employees to treat their management with skepticism especially when the accounting decisions was income decreasing.Warfield, T. (2008): Financial Statement presentation and on professional interpretation of fair value; Journal of Accounting research, 45, 4, 620-724
Proell, C. (2008): Effects of actual and expected accounting choices on judgments and decisions: Accounting Review, 13, 49
Riper, R. (2006): Setting standards for financial reporting; Contemporary Accounting Research; 13, 135
Belkaoui, A. (2007): Accounting in the dual economy; Journal of Accounting Research, 10, 67
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