Contemporary Accounting Issues: Lack Of Accounting Transparency In Reporting Essay.

Practical Motivation and Justification

Discuss about the Contemporary Accounting Issues.

Accounting regimes vary from country to country throughout the world and factors that impact upon their ongoing development and evaluation (Smith 2014). During the phase of development of the national accounting systems, several contemporary issues of accounting have been identified at the time of defining global accounting norms. After the “Sarbanes –Oxley Act” was passed in 2002 several accounting reporting and auditing practices have been revolutionized. By this act various accounting debacles like HIH, Enron, Worldcom, have been addressed and several contemporary accounting issues related to “corporate governance”, “fundamental irregularities in accounting and restatement or aggressive accounting”, “internal-control”, “accounting transparency”, “quality of auditing and audit independence” and many others have been identified (Guthrie, Ricceri and Dumay 2012). Issues related on these topics not only bear the practical volumes and signify implication for regulations and the settings of policy but also have much academic indications and propositions (Rankin et al. 2012). In this assignment the main contemporary issue has been selected is the lack of accounting transparency in reporting of statement of performance at the end of the financial year.

The current research is to explore major areas of accounting and recapitulate the most sensitive issues in current accounting research topic. The research further establishes the relationship of different components of accounting which needs to be maintained for the purpose of smooth accounting practices.

There are several incidents encountered deceptive or misleading accounting practices. Companies in different sectors were involved in detecting and dealing with accounting irregularities (Annisette and Prasad 2016). For instance, companies like Enron, HIH, One.Tel were accelerated revenue and involved in less transparent or irregularities in accounting practices. The companies were accelerated in revenue by different ways, such as the following:

• A sudden change in revenue recognition policies of the firm
• Undisclosed or unexplained increase in profit
• Unusual or large sales transactions occurred before the end of the reporting period
• Sales, accounts receivable balances, revenues that were increased suddenly
• Accelerated revenue without a corresponding increase in costs or offsetting increase in accounts receivable

Companies or accounting professionals are being criticized during the practice of several irregular accounting activities such as “channel stuffing”, “bill and hold transactions”, “prepayments”, “delaying expenses”, “accelerated expenses”, “overstating inventory to increase profit” (Griffin and Wright 2015). Allegations of improperly accelerating revenue recognition are the main motive of this research study. In the other sense, infringe principles of accounting practices directly impacts on company’s stakeholders such as shareholders, managers, accounting regulatory bodies such as IASB, AASB and the general public as a whole. Due to all this fact, this can be said that the chosen research topic is quite justifiable and relevant.

Irregularity accounting has become one of the popular topics in modern studies in the years since the debacle of lists of company bankruptcy and failures shortly after the turn of this century (Gupta 2015). This study incorporates all the frequent encountered misleading accounting practices which are occurred in the recent times. Among the topic of accounting irregularities like “delaying expense matching or recognition”, “speeding up revenue recognition”, or “intentional misclassifications”, the most studied is the management of earnings (Henderson et al. 2015). The existing research will contribute in the area of “earnings management” which perhaps has been one of the rarely discussed fields of non-accounting academic researches since many times. Thus, studies on the irregularities not only investigate the reason behind the irregularity occurred like “management incentives for personal gains” but also discussed techniques were used and how effectives these techniques might be in the future as well.  Thus the research provides a “good summary for accounting earnings and related issues”. Most of the techniques applied by companies to maintain “information asymmetry”, although manager’s forecast have become more significant related to this which is less discussed in the prior accounting researches. Due to all this reason, the researcher will explore the knowledge of asymmetric information that is not available to outsiders otherwise. 

Theoretical Motivation or Research Contribution

The collection, preparation and presentation of accounting information are subject to various methods and standards. The consequences of accounting or financial misconduct or other contemporary accounting issues are raised because several practitioners’ record items in wrong perceptions and information such as revenues, liabilities, expenses are not represents their true value at the end of the financial statements (Cumming, Dannhauser and Johan 2015). However, most of the accounting issues intended for showing the positive results and report to the shareholders at the end of fiscal year. There are several issues can be found in accounting research.

The first critical issue is the “corporate governance and related environment of the firm” and structure that must be established and maintained to function properly to assure that the system of accounting operating well and reporting in a timely and regulations-abiding manner. In the general business environment, the regulatory authorities are instructed several rules and motioning. According to Dickins and Schneider (2016) accounting must operate in unison with the surrounding environment to maintain high quality of functions. However, there are several number of literatures indicate that the effects of corporate governance structure and organizational environments on the system of accounting and the functioning of the reporting of accounts are highly significant (Cumming, Dannhauser and Johan 2015). In other words, “an independent corporate governance structure and healthy accounting exposure” can significantly improve and maintain the accounting and enhance the reporting quality. However, issue mainly raised for lack of eventual corporate transparency, internal control and inefficient resource allocations. This has been further intensified due to agency conflicts within the organization. On the other hand, the “irregularities and aggressive accounting” are likely to incur if the governments are deteriorate and weaken in the aspect of supports and monitoring.

The second issue is the system of accounting and “internal control systems”. Several potential violations and frauds related to this issue can be restricted by the typical divisions and classification of accounting functions supply the information of accounting checks and balances except the firm’s guarantee (Calluzzo, Wang and Wu 2015). It is obvious that the implementation of the functions of accounting is not an evident until the report of the accounts are produced and rendered to the public. In this context, if the firm applied in more restrictive requirement of “Sarbanes –Oxley Act”, which are followed many of the Australian firms, the literature can deliver new dramatic moves an get more new research topics of their effects on accounting in the current years (Dickins and Schneider 2016). There are a lot of gaps are exist in the area of accounting internal system functions. It is indeed an integral part to make the accounting function more effective which needs to be derived from its outcomes of the reports of the financial and depends on the quality of information.

Literature Review

The third contemporary critical issue is majorly emphasized the “accounting measurement and estimations and their integrated results of accounting works”: the report of the financial and their quality. This is the center important factor of the research in accounting. According to ArAs (2016), “it is in fact a group of research topics that are composed most of advanced and pioneer studies in modern accounting research”. There are several years are invested by FASB, accounting academia and many of the accounting professions in the search of various possible techniques and ways to enhance the accuracy in the measurements of accounting and functionality and the quality of accounting information.

Despite the fact that the different publications of accounting have focused on various slices of accounting problems, there are three typical layers or areas of accounting research: the estimations and measurements of accounting, the reporting quality of accounting and the accounting irregularities and related restatements (Rankin et al. 2012). However, the main theme of the literatures is the identifying the contemporary issues in accounting research.

Accounting irregularities does not provide the true financial picture of the company. The shareholders take their future investment decisions based on the company’s financial report. Thus it would be difficult for them to take the appropriate decisions. Based on the above discussion, the researcher develops two hypotheses:

H₁:  Accounting irregularities does responsible for financial misconduct

H₀: Accounting irregularities does not responsible for financial misconduct

In this research, the researcher will achieve research objectives via testing above mentioned hypotheses.

Methodology provides the theoretical framework for conducting the research. In this research, the researcher will follow the “secondary research analysis” based on the positivism research philosophy. According to Mackey and Gass (2015), “positivism” is an objective approach which generally relies on facts and figures and relevant quantitative data.  In the secondary research section, the researcher will explore the “quantitative data” by discussing and analyzing previous research works. Moreover, several issues in accounting will be analyzed which are gathered from journals, magazines, books, companies accounting records and so on by following “secondary data collection method”.  In this context, different viewpoints of the accounting professionals which are previously discussed will be incorporated in the analysis section of the research. On the other hand, the researcher will take “deductive approach” while conducting this research. With the approach, the researcher will test their hypotheses to address the objectives of the research (Panneerselvam 2014). Furthermore, the researcher will follow the “exploratory research design” which explores contemporary issues in accounting more emphatically.

References:

Annisette, M. and Prasad, A., 2016. Critical accounting research in hyper-racial times. Critical Perspectives on Accounting.

ArAs, G., 2016. A handbook of corporate governance and social responsibility. CRC Press.

Calluzzo, P., Wang, W. and Wu, S., 2015. Catch Me If You Can: Financial Misconduct around Corporate Headquarters Relocations. Available at SSRN 2627760.

Cumming, D., Dannhauser, R. and Johan, S., 2015. Financial market misconduct and agency conflicts: A synthesis and future directions. Journal of Corporate Finance, 34, pp.150-168.

Dickins, D. and Schneider, D.K., 2016. Academic Research in Accounting: A Framework for Quality Reviews. Current Issues in Auditing, 10(1), pp.A34-A46.

Griffin, P.A. and Wright, A.M., 2015. Commentaries on Big Data's importance for accounting and auditing. Accounting Horizons, 29(2), pp.377-379.

Gupta, A.K., 2015. Emerging issues in accounting. Asian Journal of Multidisciplinary Studies, 3(11).

Guthrie, J., Ricceri, F. and Dumay, J., 2012. Reflections and projections: a decade of intellectual capital accounting research. The British Accounting Review, 44(2), pp.68-82.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Mackey, A. and Gass, S.M., 2015. Second language research: Methodology and design. Routledge.

Panneerselvam, R., 2014. Research methodology. PHI Learning Pvt. Ltd..

Rankin, M., Stanton, P.A., McGowan, S.C., Ferlauto, K. and Tilling, M., 2012. Contemporary issues in accounting. John Wiley and Sons Australia, Limited.

Smith, M., 2014. Research methods in accounting. Sage.