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Financial accounting - Assignment Example

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Financial accounting

In addition, through integrity, external auditors are required to avoid conflicts of interest when making their reports. In this way, their judgment will be imperative to the shareholders, directors, banks and other users of the audited reports. Question 2 One of the major factors to consider before investing in the biotechnology company is the profitability of the company. Through the audited financial reports, an investor will note the amount of profits and divided paid to the shareholders. In this way, an investor is at a good position to make an appropriate decision before investing in the company. Secondly, an investor should know the sources of finance adopted by the company. Companies that have wide range of sources of finance have a higher probability to survive in the current competitive business arena. Similarly, through various sources of finance, the concept of business as a going on concern is guaranteed since the company is financially stable. Another vital aspect that as an investor I will need to know is the management of the company. If the company has a strong management and auditing team and policies, it implies that financial position of the company is good thus guaranteeing high returns to the shareholders. Likewise, it is fundamental to have adequate information on the strategic plans of the company. For instance, if the company is focused at being acquired by another major company, it may result to an expansion of its services thus generating more returns. On the other hand, a company with unclear plans may fail in future thus making it unviable to invest in. Question 3 One of the recent major accounting scandals is the one that involved Olympus, a Japanese based firm that specializes in the production and selling of medical equipments and cameras. According to New York based prosecutors, Chan Ming Fon, one of the company executives was engaged in covering more than $1.7 billion losses thus providing false information to the auditors. The funds that were illegally acquired by the executives together with other seven employees were transferred to unknown financial institutions through the wire transfer. According to the FBI, Chan notified the auditors that the company funds were held in the form of Japanese bonds while in the real sense they were used to repay a loan through a firm that was under the control of Olympus. The whistle blower of this scandal was Michael Woodford soon after he was fired as British CEO in 2011. To prevent such a scandal, I suggest that auditors would seek more details and prove of all the information provided by the company. It would be also imperative for the government to intervene by bringing on board external auditors at the initial stages when the fraud was detected. Question 4 Taking into consideration that accrual accounting matches the revenue generated with the expenses incurred within a specific period of time, I would first take the bank statements that depicts the cash collection and payments for the first six months the period that my clients want to be audited. In the same way, I would separate the invoices and the bills that are covered in the first six months. This will be followed by comparing whether the sales incurred in the first six months are inline with the expenses incurred within the same period. According to accrual accounting, selling products on credit may result to future revenue streams that may affect the current financial position of the company (Barry and Jamie 11). To avoid this scenario, I would treat all the credit sales within the first six months as account receivables. For example, computers that were repaired ...Show more

Summary

By upholding ethics in their auditing exercise, I think independent certified public accountants can maintain an independent audit engagement.By adopting the aspect of objectivity, that excludes prejudice and bias, auditors gives fair view of the company position…
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Financial accounting essay example
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