The Information Asymmetry, Corporate Failures in Contemporary Issue in Accounting - Essay Example

Only on StudentShare

Extract of sample
The Information Asymmetry, Corporate Failures in Contemporary Issue in Accounting

The internal auditor plays a critical role in reducing agency costs by ensuring and assuring that financial reports prepared by the firm are consistent with regulations and standards as expected by the investors (Ahlawat & Lowe 2004, p. 147). There is often a business relationship between the client and the external audit. The firm contracts the auditor to audit and attest to the firm’s accuracy of the financial statements. Corporate failures and major financial scandals like Enron and WorldCom have resulted from poor accounting system where there were information asymmetry between shareholders, investors as well as other outside parties, and the insider parties mainly the management executives and the internal auditors. There is also a business relationship between the auditor and the shareholders who rely on the financial statements prepared by the auditor. Internal audit function works closely with the management in examining internal controls, detecting fraud and advising them in the appropriate remedial measures in case of fraud detection in the system (Sengupta 1998, p. 462). ...
Download paper

Summary

The information asymmetry, corporate failures in contemporary issue in accounting Name: Course: College: Tutor: Date: Part A. Accounting system and corporate failures Efficacy of a firm’s accounting and audit system in minimizing agency conflicts depends on whether the accounting principles are well applied and consistent…
Author : werner85

Related Essays

Contemporary Management Accounting System
Hopwood (1976), in his book ‘Accounting and Human Behaviour” had stated that, “Accountants and other members of the management team searching for means of understanding and improving standard setting and budgeting; must therefore see the process in its entirety and respond to it as a complex human and technical problem rather than one standing in technical isolation.” This implies that there has been a paradigm shift in the principles and practices of management accounting. Management accounting no longer comprises of only the technical aspect of accounting, but also the multifaceted...
11 pages (2761 words) Essay
Accounting and Corporate Finance
It follows the principals of having discounted cash flows. The formula to find out the Net present value precisely can be written as: Cash flow (today i.e. year 0) + Cash flow (1 year from now) [/1+r (cost of capital)]^1 + Cash flow (2 years from now)/](1+r)^2 Cash flow refers to the amount of expected cash to be received at a certain point in time X years from now. Cash flows can either be negative or positive. An inflow of cash is a positive cash flow such as an income whereas an outflow is represented with a negative sign and denotes an outgoing cash amount due to for instance expenditure....
10 pages (2510 words) Essay
Issue in contemporary auditing
Governance Reporting Reporting is a vital way of sharing financial information. Therefore, it will be our responsibility to report to you on whether the financial accounts have been arranged according to the accounting strategies as stated by you. Furthermore, we would report according to auditing process undertaken by us, on whether anything has emerged to our consideration for specifying that the revenue figure described in financial reports has not been appropriately extracted from book of records, or book of records do not record and clarify the transactions, with respect to the...
12 pages (3012 words) Essay
Essay on Information Asymmetry
Owners of the corporations called shareholders therefore remain separate from the active management of the organization and managers manage the organization as custodian of the shareholders. However, this creates issue of agency wherein though managers act as the agents of shareholders, they pursue their own interests. (Sau,2003) The actions of managers therefore are assumed to be in direct conflict with the interests of the shareholders. One of the key reasons for this conflict of interest is the availability and access to information. Since managers are actively involved into the management...
9 pages (2259 words) Essay
Current Issue In Accounting (Accounting Theory)
Accounting is considerably a measurement tool since it assesses the value and returns of the company in comparison to the costs. The measurement of fair values (FV) of assets is inclusive of numerous aspects, for example, market risk or credit risk. According to Schroeder, Clark & Cathey (2010) the U.S GAAP standards differ in specificity of the valuation models. Some corporations determine the fair value (FV) of their assets and liabilities as a net amount, and not them in their singularity. The Financial Accounting Standards Board (FASB) emphasizes that is imperative for corporations to...
7 pages (1757 words) Essay
Identifies a contemporary issue associated with employment and/or leadership in accounting and finance. The issue must be linked
There were key findings from the real estate boom in UK and USA which showed how the government responded in the worse situations. The key conclusions stated that the government has many intervening roles where the features of privatizations cannot help. These were related with the leadership roles. Recommendations suggested can be that the government has certain fallacies in dealing with matters like Exponential fiscal policy which seems to be in contradiction with the established theories. It also needs to be a little more flexible in dealing with the new financial forms. Table of contents...
15 pages (3765 words) Essay
Did Credit Rating Agencies do good work?
This part of the study suggested why the credibility of credit rating agencies came into the scrutiny. Following that, a detailed study was done regarding the agency costs and its effects on the value of a company. It was seen that, agency cost mostly arises due to the principal agent problem. The principal agent problem is nothing but the situation that is characterized by a conflict of interest between the principal and the agent who are the managers and the shareholder respectively. This conflict of interests leads to agency costs and thereby decreases the value of a firm. Thereafter, the...
14 pages (3514 words) Research Paper
Got a tricky question? Receive an answer from students like you! Try us!