Examining The Effectiveness Of Accounting Systems Accounting Essay

Examining The Effectiveness Of Accounting Systems Accounting EssayThe designation begins with an attempt to find bug appear the effective of invoice ashess deep down a course and the analysis of caution stretch forth ashess of a occupancy.ResearchI drilld a mixture of primary and secondary research methods to conditioninated this assignment. I spend a penny set upd references at the end where needed and utilise a variety of books and nones. A huge with that I consulted a few websites, details ar on the references.TASK 1Introduction of chronicleAccounting is each astir(predicate)(predicate) providing fiscal and economic in chassisation. Accounting breeding is economic schooling, it relates to the pecuniary or economic make a motionivities of the craft.Accounting information memorialises the pecuniary position of a fear. This is d unmatched by the set of accounts, reard on a musical arrangement known as double-entry bookkeeping.One of the first hav e it off documentation ab come appear of the closet how to keep books of story was written by the professor of mathematics in Rome Luca Pacioli in 1494. This documentation described the double-entry arranging of account. It was adopted and ease apply to day term around the world.Users of Accounting thither ar devil type of users.FDocumentsDownloadsch1_accounting_types_users.gifhttp//simplestudies.com/introduction-to-accounting.htmlTypes of accounting at that topographic point argon two types of accounting1 Financial accountingFinancial accounting tells us intimately the fiscal position of stemma it is used to prepare fiscal literary argument. This chip ins tot tot exclusivelyyy the finance related information to its users and on the basis of that information a user will be able to do comparability and learn the position of the comp every(prenominal) and it guides part in important decision fashioning have-to doe with.2 Management accountingOn the former(a) han d management accounts deals with the budgeting, parentage depreciates and cost analysis it is used to make planning and confine the lineage expenses.Accounting formationsComputerised accounting agreementmanual of arms accounting systemThese geezerhood computing machineised accounting system is widely used in only type of dividing linees. The result of this system is more(prenominal) convenient and accurate so manual accounting system.The question arises how this system operates, this system operates by computer packet which has to install in the computer. Accounting packages software program programs which is used in these days it is used to get lucreroll packages gross revenue account book get ledger and fixed assets. on that point are lots of accounting softwares are purchasable one of the famous software name is off the shelf software it generates the document by getting commands by coding this software is genuinely easy to use because of this software we do nt need any professional restrainer who set up the account it is very convenient to use one of the example of such software is sage which is very common in these days and easy to operate and it generates the accounts information by its self by coding and a nonher kind of software is called as BESPOKE software its a customised software most of the larger size governments are utilize this software. It gives them customised entries in the books of accounts.CodingComputer operates on the bases of dose commands to performs its tasks for the accounting software coding is used to make the software more easy to usee.g. 05 for purchases15 for interest25 for meshwork and loss accountsUntitled sssss.jpgManual accounting systemManual accounting systems are the traditional form of master(prenominal)taining a businesss accounts and eternalises this takes different steps like ledgers hard currency book petite exchange book income statement and balance sheet which includes all the day to day minutes and sell purchase accounts this accounting system involve skills and knowledge to full fill its requirements.1.1 Effectiveness of accounting system in spite of appearance a businessInformation generated from the accounting system can be effective in decision making impact sale and purchase of assets and in enduements. Quality and benefits of accounting system is evaluated from the performance evaluation, privileged meet and proper records of transactions.Effectiveness of accounting information is aim on time management which have a great effect on accounting systems effectiveness, there for the accounting records should be maintain on time and with on-keyness of accounting information it have a great impact on the effectiveness of accounting system.Generally accounting information system provide the information about pecuniary position on daily and periodical basis the effectiveness of accounting system not only depend upon the propose of such system it also depend on the mishap factors ( factors like culture brain of organisation and outer atmosphere) accounting information is said to be effective when the information is complete and according to the system users effectiveness of accounting system is subject to many researches from a long time.Accounting information is normally divided into two categories (1) the information that drive decision making (2) Information that influence decision making.1.2 Accounting records every(prenominal) of the documents and books includes in the preparation of accounting records includes journal, ledger, trial balance, cash books, invoices or any document which help in to make accounts.In accounting records a cycle is used which is called as accounting cycle it determines the steps of financial statement.ACCOUNTING CYCLEFDocumentsDownloadsaccounting-cycle4.jpghttp//basiccollegeaccounting.com/what-is-an-accounting-cycle-and-the-steps-involved/ get and use of accounting records both accounting record s are very useful and had a great reeconomic value for its respective business without a proper accounting records it is very unwieldy to run a business masteryfull.The purpose of maintaining accounting records to evaluate how well-nigh(prenominal) bang-up and assets a business have and also maintain the records of creditors and debtors or buyers and sellers by the respect of that records a user can have a clear eye on the business and watch the losses and meshing in the business whether the business doing well or not and on the basis of that records business can take decisions whether business have to invest or take out all the investments or run the business as it is these record help to make more accurate and well-to-do decision making which help to make business more profit and also used for calculating tax obligation and give the information to the investors who are willing to buy the shares of that beau monde.Accounting purposesAccounting concepts is very important, it is used to support the application of the unbowed and attractive raft, and accounting has adopted original concepts which help to ensure that accounting information is presented accurately and consistently.(1) Going foreboding it is assumed that the business entity for which accounts are being prepared is solvent and variable, and the business will continue its operations for the foreseeable future. This has important implications for the valuation of assets and liabilities.(2) Accruals concept revenue and expenses are interpreted account of when they occur and not when the cash is stock or paid out.(3) Prudence concept revenue and salary are included in the balance sheet only when they are realized and liabilities are included when there is a reasonable surmisal of incurring them it is also called conservation concept. Profits are not appreciate until a sale has been completed. In addition, a cautious debate is taken for future problems and cost of the business (they a re provided for in the accounts as in short as there is a reasonable chance that such costs will be incurred in the future.(4) Consistency concept once an entity has chosen an accounting method, it should continue to use the same method, except for a stiff reason to change. Any change in the accounting method must(prenominal) be disclosed. Transactions and valuation methods are treated the same ain manner from year to year, or period to period. Where accounting policies are changed, companies are take to disclose this fact and explain the impact of any change.(5) Entity concept accounting records reflect the financial activities of a specific business or administration, and not of its owners or employees.(6) Matching concept transactions affecting both revenues and expenses should be recognized in the same accounting period.(7) corporeality concept comparatively minor events whitethorn be ignored, but the major ones should be to the full disclosed.(8) Realization concept a ny change in the market value of an asset or liability is not recognized as a profit or loss until the asset is sold or the liability is paid off (discharged).(9) Money measurement concept accounting process records only those activities that can be evince in monetary harm (with some exceptions, as in cost-accounting).(10) Separate entity concept Business is the cut off entity from its owner.(11)Relevance concept This implies that, to be useful, accounting information must assist a user to form, confirm or whitethornbe revise a view usually in the context of making a decision (e.g. should I invest, should I lend money to this business? Should I work for this business?)1.3 Factors Affecting Accounting System on that point are lots of factors which affect the accounting system the major factor are which affect the organisation is the (1) nature of business and (2)size of organisation and 3the structure of the organization if the organization is a multinational company thusly the a ccounting system of that organisation is on a very high level and very complex and they have separate department for all the accounting related work if a small company going to increase its size thence they should have to change the accounting method and adopt the new method because of bigger amount of transactions are also taken place in the business on which the old method can no longitudinal apply, and the other factor which affect the accounting system the change in IAS if in IAS some new rules are coming in then the business have to adopt that rule and adopt in the business and make there strategy according to it.2.1 Business lay on the lineBusiness find cannot be eliminated but must be managed by companies. on that point are several ways to minimize the business take a chance by proper planning.Determining Business put on the line Developing the Business put on the line ModelIt is important for an organization to identify the business riskiness of exposures that exi st in the environs in which it operates. To identify those risks, organizations must look at their foreign surroundingss. out-of-door business risks are economic, political, social, environsal, technological, and other outer conditions.An organization cannot fully understand its business risks unless it also understands its business objectives, strategies, and processes.Interrelationships among business objectives, strategies, processes, and business riskhttp//www.clir.org/pubs/ hatchs/pub90/appendix1.htmlTypes of riskOperational risksOperational risks are followerd with your business operable and administrative procedures. These includerecruitmentsupply chaintransportationaccounting manipulatesIT systemsregulationsboard compositionBusiness should examine these operations, prioritise the risks and make necessary provisions.Financial RiskFinancial risk is the risk made by equity holders by using of firms debt. If the company raises capital by borrowing money, I t must pay back with the interest charges. This increases the full stop of doubtfulness about the company and it must have enough income to pay back that amount in the futurecompliance riskcompliance risk is the possibility that the business will not comply with laws and regulations in the jurisdictions where it operates or that the organization will break any legally contract. noncompliance can be dangerous, or it can result from being insensible or local legal requirements.Response to riskA business can take any given risk.Accept risk if the risk of loss is minimum then only accept the risk and carry on business according to it.Reduce risk reducing the risk by better planning and strategiesAvoid risk do not enter into that kind of business in which there is some bigger riskTransfer risk companies can also transfer the risk by taking insurance policy.2.2 Describe and evaluate the domination systemThe environment in which business operates and the system it adopts is a process, affected b y an entitys board of directors, management and other personnel, designed to provide assurance regarding to the success of objectives in the following areaseffectiveness and efficiency of operations,reliability of financial write uping, andCompliance with applicable laws and regulations.IAS315 gives us an understanding of the entity and its environment and assessing the risk of business and reassure system of business.ISA identify the five elements of control system,The control environmentRisk assessmentInformation and communication go through activitiesMonitoring instruction environment check off environment is that in which control system operates. laterality environment is defined by the business management. Control environment forming a base for control activities, risk assessment, monitoring, awareness and action of those changed with governance and management. The control environment is the most important component because it sets the tone for the organization. Factors of t he control environment include employees integrity, the organizations commitment to competence, managements philosophy and operating style, and the attention and direction of the board of directors and its canvas committee.Risk assessmentRisk assessment take the identification, analysis, and management of uncertainty in business facing the organization. Risk assessment is relevant to the financial piece of musicing and organization operational objectives. The management have to carry out a risk assessment from attendant which provides information with confidence that company system will not have any misconduct in them.Information systemInformation system is the system that processes the information within an organization it includes processing the information and the procedure to initiate record and report on financial statement both manual and computerised.Control activitiesControl activities include the policies and procedures maintained by the management of an organization t o find risk. E.g. Control activity is a policy requiring the approval by the board of directors for all purchases exceeded from an estimating amount. Control activities are the important element of internal control, this provide mirth to prevent wrong decision from occurring.MonitoringMonitoring refers to the assessment of the musical note of internal control. Monitoring activities provide information about potential and factual breakdowns in a control system that could make it difficult for an organization to achieve its goals.2.3 FraudFraud is an intentional mistake by the management, employs or third parties for illegal financial advantages. Or if we talk about an wrongful conduct its an unintentional mistake.Fraud is difficult to be identifying because it is done by complete planning and care so the internal canvass is conduct to chance upon the thespian.THE DIFFERENCE BETWEEN FRAUDSAND ERRORThe distinguishing factor surrounded by fraud and error is that action which res ults in a misstatement of the financial statements it is intentional or unintentional. The term fraud is a broad legal concept, but the attender is refer with fraud that causes a framework mistake in the financial statements. ISA 240 (Redrafted) defines fraud as An intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an raw or illegal advantage. AndSAS 99 defines fraud as an intentional act that results in a material misstatement in financial statementshttp//en.wikipedia.org/wiki/Statement_on_ take stocking_Standards_No._99_Consideration_of_FraudTypes of fraudThere are many types of fraud which relates to a business.Ghost employMiscasting of payrolls, larceny unclaimed wages,Collusion remote partiesTeeming and leadingAltering cheques and inflating expense claimStealing assetsIssuing false creditor notesFailing to record all salesPrevention of FraudFraud is preventing by implementing the rules and laws in the business some of the points are written below which is very useful for the business to prevent the business from fraud.A good internal control systemContinuous supervision of all employeesSurprise size up visitsThrough personal procedureDetection of fraud in the businessMaintaining key control procedure abbreviate the risk of fraud occurring and increases the risk of encounterion control over cash transaction are more important this is the main area in which mostly frauds are happen.Cash receipts dungeon eye on all transactions which are placing in the business. fork the duties between different functions, in other words more than a person. There are following point which is very useful to line up the fraud.Receipts by postSafeguard to prevent interception of mail between receipts and opening.Appoint person to supervise mailsProtection of cash and chequesControl over cash sales and collectionRestriction of receipts receivedEvidenceClearance of cash officer and registerInvestigation of cash storage and surplusesPaying into bankDaily bankingMake up and comparison of paying in slips and receiptsBanking receipts recordCondition and events busy financial reporting pressure in an entityInadequate working capital due to declining profit or too rapid expansionIncreases sales on credit this area should be check to find out if anything is going wrong is that department.Unusual transactionIf unusual transaction is take place especially at year end that gives any noteworthy effect on earnings.Complex transaction or accounting treatment. occupation 33.1 hearersDuties, sets and liabilityWhat is an visit?An analyze is an examination of a companys financial statements prepared by the directors of the company. Its purpose is to give the company shareholders an independent, professional and intercommunicate tone on the financial statements It has been prepared according to the Companies Acts, any other relevant legislation and r elevant accounting standards. It gives a true and ordinary view of the condition of the company on financial statement.Who is an tender?An attender is an independent professional person who is qualified to analyse a companys financial statements.What does an audit involve?In carrying out an audit, an auditor will usually Identify the data of the financial statements that have some errors. check the transactions record, account balances and disclosures. Give suggestions on companys accounting policies are reasonable. Test that the companys internal controls are effective. write management letter if any problems discovered during the audit and advise on how to deal with that. write and issue the auditors report to the members of the company.What are the duties of auditors?Duty to provide an audit reportThe main duty of auditors is to report to the shareholders on whether in their perspicacity the companys financial statements give a true and fair view. They may give A qualified o pinion this says that the financial statements give a true and fair view of the companys state of personal matters except for certain stated circumstances. A disclaimer of opinion this shows that the auditor is unable to give an opinion whether the financial statements gives a true and fair view or not. An adverse opinion it says that the financial statements do not give a true and fair view.What are the compensates of auditors?Auditors have the right to Access the books and accounts of the company and its subsidiaries Access information and explanations from the companys directors and employees. be notified of company cosmopolitan meetings and address the meetings. explain in ecumenical meeting the circumstances of any condition to remove them as auditor.Liabilities of auditorGive a true and fair view on financial statement and deliver the right information to the general macrocosm and shareholders to prevent them from loss3.2 national and immaterial auditThe External Aud itorthe external auditor examines the transactions record that takes part in thefinancialstatements.Theinternal AuditorThe internal auditor, on the other hand, deals with its major operations, risk management and internal controls.The Main DifferencesThere are many key differences between internal and external audit.The external auditor is an external contractor how does not belongs to the organization, company hire the he auditor for auditing firms. The external auditor seeks to provide an opinion on whether the accounts show a true and fair view.Whereas internal audit forms an opinion on the adequacy and effectiveness of systems of risk management andinternal control, many of which are outside the mainaccountingsystems.The 3 Key Models of Organization Activities Involves Internal and External Audit3 Key Models of Organization Activities involves Internal Vs External AuditorDifference and Similarities of Internal Auditor Vs. External Auditor present is alist ofInternalAudit Versus External Audit in detailInternal Auditor Vs External Auditorhttp//accounting-financial-tax.com/2008/08/differences-and-similarities-of-internal-auditor-v-external-auditor/3.3 Planning of auditingIn auditing of any organisation, auditor has to consider certain things before audit.First is kitchen rangeIn any audit should be to determine its telescope and the auditors general approach.Audit strategyAuditor has to make some strategy for the auditing and place it with auditing documents which defines the major areas on which auditor has to take extra care and the difficulties associate with audit and the auditing clients points of concerns.Documents accounting systemAuditor has to collect all those documents associated with audit e.g. financial statement, transactions record, receipts, and other related documents. Auditor need these documents to analyse it and find all the aspects of transactions to find out whether the financial statement have any error or not or is there any possibi lity of fraud is there or not and whether it gives a true and fair view or not.System and internal controlsAt this stage the objective is to determine the be given of documents and the facts related to the documents and the operational system in the organisation. At this level auditor has to find the facts related to documents and the documents flow in the departments including sales, purchases, cash and stock and accounts personal. This is the good way to find out the rough estimate of system, after that which will be converted into testicle record.Audit RiskJust like risks in business some risks are also relates with the auditing.Audit risk is defined asAudit risk is the risk that that auditor may give an inappropriate opinion on the financial statementComponents of audit riskAudit risk has three componentsInherent riskInherent risk is the risk that auditor may be misstated because of lack of knowledge and insufficient information addressable for it. Auditor has to use their pr ofessional practice and forthcoming knowledge about the item to asses inherent risk if no such information is available then the inherent risk is high.Control riskControl risk is the risk that organisation control system fails to detect the material misstatement. And the financial statement do not prepare according to the IAS.Detection riskDetection risk is the risk that auditor will fail to detect the material misstatement of accounting system. Detection risk relates to the knowledge, practice and the experience of the auditor.MaterialityMateriality is relates to the financial statement, it is an deliverion of the relative importance of a occurrence matter on the mean of financial statement as a whole or as an individual. A matter is material if its inattention or misstatement could influence the economic decision of the users which basis on that financial statement. Materiality depends on the size operations of organization.ISA 320 tells the auditor to consider materiality and its relation with risk at the time of conducting an audit.3.4 Audit testing and usesIn developing overall audit plan, auditors uses five types of audit tests to find out whether financial statement are truly stated or not.Procedures to restrain an UnderstandingAuditors perform this by a system called walkthrough to obtain understanding it applies on the transactions and entire process is operated like this.Tests of Controlsprocedure used to obtaining an understanding about internal control, it requires followings evidencesMake inquires of client personal interpret documents, records and reportsObserve control activitiesReform client procedureTest of Control is used to determine whether the control system is effective or not and usually involves a testing of transaction.Substantive Tests of TransactionsProcedures designed to test for dollar misstatements of financial statement balances.Analytical ProceduresTo indicate possible misstatementsTo reduce tests of details of balancesTes ts of Details of BalancesFocus on ending G/L balancesIt is used to find out whether the balance of the financial statement is accurate.3.5 Records Auditing processAuditProcessFlowchart.gifhttp//www.window.state.tx.us/taxinfo/audit/auditfun/5procedures.htmAudit testIn the large company with advanced internal control and low inherent risk therefore auditor perform extensive test and it relies on the client internal control to reduce substitutive test because of the emphasis on test of control and analytical procedure, this audit can be done comparable in inexpensive. This audit likely represents the mix of evidences used in integrated audit of public company financial statements and internal control over financial reporting.TASK44.1 Purpose of Audit ReportAudit report is that report in which external auditor express their opinion about the true and fair view of the financial statement of the organisation.The audit report is published for the shareholders, management or directors and a lso for general public. There are two key differences between the report to shareholders and to report for the management.The shareholders report is to show whether the financial statement shows a true and fair viewAnd the private report for the management and directors which contain comments and recommendations on the financial statementContents of audit reportAuditor report on financial statement contains clear opinion ground on the assessment of record. Audit report draw on a complete pattern which gives the clear view to its users. The main contents of audit report as follow.Untitled contents.JPG4.2 Different qualifications in reportThere are two types of reports one is unqualified or unmodified report and the second is qualified or modified report.1 An unqualified audit report gives assurance to its users and gives true and fair of the financial statement and there is no material mistakes are in it. An unqualified report option by laws and rule under companies act 1985. Which contain followings?Proper accounting recordsAll information and explanationsDetails of directors benefitsParticulars of loans and other transactions2 drug-addicted reportOn the qualified report auditor give two types of opinions.Matters that affect the auditors opinionMatter that do not affect the auditors opinionMatters that affect the auditors opinionAuditor may not be give appropriate opinion because of some circumstances like insufficient material of financial statement. And others factors are as follow.There is any limitation of scope in auditors work. It may be material or pervasive variability with management it may be material or pervasiveThese two factors farther divide into two branches.A limitation of scope may lead to disclaimer of opinion. A disclaimer opinion should be expressed when the limitation of scope is so material or pervasive when auditor do not obtain any evidence related to that to express his opinion on the financial statement.Disagreement may leads to ad verse opinion. It should be expressed when effect of disagreement is material and pervasive when some delusory or incomplete information in the financial statement.Matters that do not affect the auditors opinionIn some circumstances auditor may give unqualified opinion because of the uncompleted information in the financial statement in this case auditor write a split up is called as emphasis of matter describing a fundamental uncertainty and then give an opinion on that.4.3 Management letterMANAGMENT LETTERThe room of Directors, ABC COAlpha Co Limited, certified accountants15 Essex roadway 29 High Street,London, EC1N 2HB