Challenges in Accounting Profession Business Transactions

Question: Describe about the Challenges in Accounting Profession for Business Transactions. Answer: Introduction In every business organization it is important to maintain the records of the different transactions. This recording is important of the organization to analyze performance of the organization in the concerned Market with respect to the resources or funds are invested. The accountants play a huge role in the economic development of the organization as well as the nation (Sanusi Izedonmi, 2014). Therefore, it can be said that, accounting profession helps in the reporting and performance measurement of any organization in any circumstances. There are several subsystems that work under the profession of the accounting in Australia. These subsystems which can be distinguished as the subsystems of accounting fields incorporate; government accounting , business accounting , social accounting , evaluation and tax collection, all of which help in developing economic plan, in project appraisal and formation of the capital etc. The following report consists about the discussion about the issues that are faced by the accounting professionals. In addition to that, solution to that problem and justification for the selected solution is also provided in this paper. Accounting profession and the challenges From a layman point of view, accounting could be viewed as a professional whose essential duty is to decide, record, investigate and exhibits economic data to the organizations as well as to the intended users. Therefore the challenges and drawbacks can have a huge impact on the performance of the organization (Ibanichuka Ihendinihu, 2012). The accountant gives qualitive economic information about financial elements that intended to be valuable in financial decision making. This data helps the user to settle on contemplated decisions among available options of employment of rare resources in conducting financial and business activities. The requirement for accounting in this way emerged in light of making sensible utilization of scare resources, accumulation of wealth and deliver high quality of products and services in an aggressive economy (Sanusi Izedonmi, 2014). The financial data provided by the accountants basically intended to impact on the economic development and in creating transparency straightforwardness. The nature of corporate accounting data decides the level of transparency in organizational management and governance (Tassadaq Malik, 2015). High quality of the corporate financial data is vital in enhancing transparency, encouraging the flow of international and domestic investment, making a sound investment environment and helping in building investors confidence. All this can help in securing the financial stability. But there are issues that are faced by the accounting professionals while they complete their responsibilities in an organization. In the last decade major advancements in the information technology, globalization of business by the different companies, elevated public awareness about the change in the global business environment and rising community educational realization asks the accountants to develop a wider variety of expertise and to recall the social as well as financial responsibilities of the business organizations (Ibanichuka Ihendinihu, 2012). While delivering their responsibilities there are several ethical challenges faced by the accountants of Australia. The ethical challenges faced by the accounting professional consist of several dimensions. One of the most impactful challenge is creative accounting. Creative accounting and its impacts Creative accounting indicates to the use of accounting knowledge to manipulate the stated figures in the given report, while maintaining the rules and jurisdiction accounting rules and guidelines. The accountant does this in order to depict the economic situation according to the wishes of management to hide the actual situation from the stakeholders of the business. This measure is used by the organization to choose an accounting methodology or policy that is suitable for depicting the suitable image in front of its stakeholders (Tassadaq Malik, 2015). In this creative accounting method, the artificial or fake transactions are inserted to manage the balance sheet and transferring the profit from the business in different financial periods. Most industry firms have constantly been connected with fraud and have perpetually been suffering from financial collapses. Techniques in creative accounting This creative accounting can be done using various ways some of them are. Manipulation of the structure and value of the cost. As an example it can be said that, according to the regulations for some specific assets, just the maximum number of years in which its value will be depreciated is given in the financial reports. Therefore, a small change in the depreciation value (whether its higher or smaller value) can have a huge impact on the financial results. On the other hand the change or alteration in the structure and value of the revenue accumulated from the business (Melo, Pereira Souza, 2014). In some specific situation, the recognition of the revenue from the business is slowed down or intensified by connecting the cost with the revenues. Modification of the value of the assets. The altered value about the depreciation of the net value of the assets. In addition to that, as the stocks of an business organization can be assessed in different techniques, therefore the value from every methodology will differ from another (Rao Nihar, 2016). This has an impact on the profit-loss statement of the business organization. This also changes the amount of the net assets available to the organization. As an example it can be said that, the indicators of the revenue and cost is calculated by considering the assets as the base. Alteration of the value of the liabilities of a particular organization. In some countries it is allowed to regularize some certain types of liabilities of an organization (Tassadaq Malik, 2015). As a result of it, the organizations targeting the enhancement of the financial results can allocate the liabilities for the maximum period of time that is permitted by the rules of the certain country. Alteration of the value of the internal capital of the organization. The modification of the values of the revenues and operational cost for the organization has an adverse impact on the final financial result of any particular organization. Like the use of the fixed asset values which will be again concluded in the reevaluation process (Melo, Pereira Souza, 2014). Thus increase in the total asset value which is not present physically for the use of the organization. Using these techniques, the organization struggling with the tighter economical situation will be able to prove their creditworthiness in front of the investors and financial institutions to get investment for its business operations. Recent accounting scandals like One.Tel, HIH insurance, World Com, and many others has illustrated the adverse effects of the Creative accounting in the organizations. At the time this organization has collapsed theses were one off the best companies in its fields having worth of billions of dollars. As an example, when the scam of One.Tel was exposed, it was one of the top five business organizations in Australia. In addition to that, in case of the genuine records, this information can be also manipulated by inserting it into the database with different timing rather than the original. This is done to increase the sell in a specific financial period as per the decision of the management of the business organization. The most important ethical factors that happen due to the creative accounting process are a) conflict of Interests, b) tax evasion and manipulation of the accounts. In the accounting profession, the creative accounting is considered as one of the formidable challenge. Therefore it is important for the accounting professionals who accepts the ethical challenges they must be aware of the fact, that the scope and abuse of the accounting policies through the manipulation of the transactions. At the same time authors like, Ahn et al. (2014) defends the use of the creative accounting in order to smoothing the income of the business organization. According to them, it is an important approach for the organizations which have a high level of fluctuation in their income that is not justified by the economic reality of the organization (Melo, Pereira Souza, 2014). According to the financial analysts , growth of most of the business organizations in the 80s are the result of creative accounting rather than its real economic growth in the industry. Solution to the creative accounting practices It is seen from different financial scams of different companies (may be international or Australian) that, it is an undesirable practice that must be avoided by the accounting professionals. In this part of the report, the discussion about the measures that will reduce the scope of the creative accounting practices by the accounting professionals. Scope for choice of accounting methodologies can be reduced by reducing the number of allowed accounting techniques (Ahn et al., 2014). In addition to that, the regulatory authorities should specify the different circumstances for which a particular a particular accounting methodology can be used. The consistency of the methods used in the organization is also important in this scenario. Since a business organization picking a methodology which produces the financial results in favor of the organization in order to develop an investment friendly image for a year will then be forced to make use of the same methodology in future circumstances where the outcome may not be beneficial or favorable for the organization (Tassadaq Malik, 2015). Today the accounting standard regulatory authorities are pursuing the objective of reducing the available accounting methodologies for the accountants. Preventing abuse of judgment: Abuse of judgment may also be curbed in two different methodologies. One way is drafting principles that can helpful in minimizing the use of judgment. As an example, manufacturer accountants tended to use the 'distinct item' part of the revenue and loss account for objects they wished to avert together with in operating revenue. Furthermore, the present rules and accounting principles of the international Accounting standards have just about to abolish the class of 'extraordinary item' (Ahn et al. 2014). In addition to that, the auditors have a role to play in identification of dishonest estimates in the organizations. Another way is to ensure that, if an organization chooses an accounting methodology that suits it in a single year it ought to proceed to apply it in the coming next years too when it would possibly not provide the favorable results for the organization. Managing the genuine transactions: Artificial or fake transactions in the accounts can also be tackled with the aid of invoking the idea of substance over from', whereby the financial substance is helps in identification of the accounting substance than the legal form of transactions. This will ensure that, the linked transactions are considered as one while making financial statements for the organization. Keeping track of the transaction : The timing of the original transactions is evidently an important factor for the better discretion of the administration. Nevertheless, the scope to make use of this method may also be constrained with the aid of requiring everyday revaluations of entities in the accounts, so that gains or losses on changes of worth are identified within the debts every yr as they occur (Tassadaq Malik, 2015). It is important factor to notice that the worldwide Accounting regulatory Boards are tending to maneuver towards valuation at fair worth of the resources instead of valuation upon historic cost according to a number of recent accounting discussion papers and standards. In addition to the changes in the regulations of accounting process, moral benchmarks and administrative steps must be legitimately implemented in the industry to prevent the professionals from using the dishonest accounting methodologies like creative accounting (Ahn et al. 2014). It is a tedious task to enforce the international standards in the wide ranges of different accounting cultural context. Conclusion The profession of accounting has been changed and witnessed some huge transformations in the last few years due to the demand from the client organizations and market. In this time, this profession was also involved in the corporate scandals that were reason for the huge loss of the investors. Therefore, due to the challenges of existing accounting methodologies it is important for the regulatory authorities to overcome these challenges and to regain the confidence of society and industry. For this, the changes in the legislations, principles and regulations were made. Here it can be stated that, without proper monitoring and controlling measures the challenges in the accounting profession cannot be eliminated completely. References Ahn, P. D., Jacobs, K., Lim, D. W., Moon, K. (2014). 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