ACC320 Contemporary Issues in Accounting Assignment

ACC320 Contemporary Issues in Accounting Assignment

ACC320 Contemporary Issues in Accounting Assignment

Introduction

In the fiercely competitive scenario, external auditing processes are considered to act as a technology that facilitates all the stakeholders of the organization to manage, control and deal with aspects in presenting risks that might lead to corporate failure (Ahmed and Ndayisaba 2016). The objective of the current paper is to analyze the impact of audit processes in resulting in corporate business law failure within Australian companies.

Practical Motivation

The risk of corporate failure is drastically faced by the stakeholders of the organization as such situation has become common internationally. A huge number of public and quoted organizations in Australia attain a misrepresented audit report. The auditors of the company get involved in fraud knowingly as they are observed to accept bribe for such misstatements (Appuhami and Bhuyan 2015). Misconducts regarding the auditors responsibilities are an increasing concern in Australia companies and fraud is observed to be a vital aspect of the “expectation gap” that is present between expectations of the financial statement users and the reports developed by the auditors. The negligence from the side of the auditors is resulting in liquidation of several companies in Australia. The accountants and managers of the organizations are dealing in issues in establishing more improvement in their corporate governance structures particularly in its internal control processes along with potential areas of attaining cost savings and audit efficient in avoiding corporate failure (Ball, Tyler and Wells 2015). Focused on such serious concern faced by the organizations, the current research will focus on analyzing the ways in which the responsibilities of stakeholders can be enhanced in conducting corporate audit in accordance with the auditing standards. Moreover, the research will also explain the practical implementation of IFRS guidelines that can facilitate in decreasing the occurrence of corporate failure for Australian organizations.

Theoretical Motivation

There exist two major models related with approaches to corporate failure that includes prospect theory and rigidity effect theory (Ball and Wells 2015). Prospect theory indicates that the managers turn out to highly prone to risk taking behavior that results them in committing towards a course of action that can lead to corporate collapses. On the other hand, “Rigidity effect theory” has a perspective that in a risky condition the managers lack their decision making power. In such situation, the board of directors acts in dealing with risky behavior or alter the corporate criteria on other hand. Failing to do so is deemed to result in corporate failure (Carnegie and O’Connell 2014). It is gathered that these theories had a gap in explaining the role of accounting standards in avoiding the risks of corporate failure. Considering such gap, the current research will focus on analyzing the importance of following the audit processes guidelines explained in “International Financial Reporting Standards (IFRS)” and “Generally Accepted Accounting Principles (GAAP)” in decreasing risks of corporate failure. Moreover the current research will also explain the necessity audit principle framework “IFAC (Professional Code of Ethics)” in order to observe the ways in which companies can attain audit process regulations and maintain strict regimes of enforcement and monitoring (Carson, Fargher and Zhang 2016).

Literature Review

Concept of Audit and Accounting Standards

Dobele, Westberg, Steel and Flowers (2014) explained the audit and accounting standards to be certain important financial reporting authoritative standards that serve as the major source of “Generally Accepted Accounting Principles (GAAP)”. It is deemed necessary for the Australian organizations to abide by the regulations of “Financial Reporting Standards (IFRS)” along with necessary accounting standards that are greatly used by publically accountable companies. Hay, Stewart and Botica Redmayne (2017) stated that the objective of the management audit is associated with the management interests like evaluation of the area efficiency or performance. An audit might also be realized as internal or external based on the interrelationships among the assoiled participants. These researchers also revealed that the Australian Auditing Standards maintain necessary requirements and offer guidelines on the auditor’s responsibilities when engaged to get involved in financial report audit or accomplish a set of financial statements along with developing a reliable form and content of auditor’s report. Martinov-Bennie, Soh and Tweedie (2015) added that the organizations in Australia are liable to obtain a statutory audit to carry out an annual audit regarding the financial position of the organizations based on the guidelines of such auditing standards.

Concept and Reasons of Corporate Failure

Miglani, Ahmed and Henry (2015) explained corporate failure to be a situation in which an organization is facing a situation to deal with lack of legally enforceable debt in order to address their current obligations. Moreover, can be declared to be liquidated in a situation where the companies have become insolvent or bankrupt in which the organization is forced to shut down its business operations. Stafford and Stapleton (2017) also defined corporate failure to be the cause of ineffective compliance with corporate governance standards that results in increased economic costs of business failure in which the stakeholders of the company are drastically affected. Yigitbasioglu (2015) elaborated that there are several causes of corporate failure in consideration to its accounting processes. These factors include lack of board effectiveness that is a result of lack in skills and competence and poor leadership culture followed within the companies that include an inability to supervise the internal audit or risk management teams in risk reporting. Stafford and Stapleton (2017) revealed that certain other factors lead to corporate failure in Australia that includes not abiding by the standards of financial standards fairness. The upper management is generally observed to deal with the corporate failure responsibility because of the ignorance of their own overconfidence, high risk-taking behavioural and non-compliance with necessary auditing standards.

The relationship between Audit process and Corporate Failure in Australian Organizations

Miglani, Ahmed and Henry (2015) evidenced that in case of Australian organizations corporate governance is observed to be a vital factor that ensures effective financial reporting and deterring misappropriations of capital within the company. Poor audit processes and corporate governance is deemed to serve as a major factor that is resulting in financial institution distress in Australia. These researchers have also revealed certain evidences on current “Economic and Financial Crimes Commissions” cases against certain bank executives. Researchers such as Miglani, Ahmed and Henry (2015) have indicated that certain other renowned companies such as HIH Insurance, ABC Learning and One-Tel Company failed because of its incapability to comply with the necessary auditing standards. These researchers also gathered that the absence of the necessary risk management and internal controls is resulting in inappropriate operation of such procedures. Stafford and Stapleton (2017) that the legal duties and responsibilities are not maintained by the directors of certain organizations that is resulting in corporate failure that is resultant from insolvent trading and not able to retain the discretionary powers along with delegating the director’s responsibility. These researchers also revealed that after failure of numerous renowned ASX listed companies, the emerging businesses in Australia are focusing on enhancing their corporate governance structures and is attempting to abide by the “Corporate Governance Network (ICGN)” that has offered its own recommended codes and audit guidelines. Hay, Stewart and Botica Redmayne (2017) added that the independent directors those are relied on independent auditors in disclosing their unassisted claims taking place from the organizational risks must be aware of the limited duties of independent auditors in investigating such risks.

Hypotheses

The research hypothesis that is to be tested through completion of this research is indicated below:
Audit processes and standards followed in the Australian organizations have a significant impact on resulting in corporate failure.

References

1. Ahmed, A.D. and Ndayisaba, G.A., 2016. Effect of corporate governance on ceo pay-risk taking association: empirical evidence from australian financial institutions. The Journal of Developing Areas50(4), pp.309-344.
2. Appuhami, R. and Bhuyan, M., 2015. Examining the influence of corporate governance on intellectual capital efficiency: Evidence from top service firms in Australia. Managerial Auditing Journal30(4/5), pp.347-372.
3. Ball, F., Tyler, J. and Wells, P., 2015. Is audit quality impacted by auditor relationships?. Journal of Contemporary Accounting & Economics11(2), pp.166-181.
4. Ball, F., and Wells, P., 2015. Is audit quality impacted by auditor relationships?. Journal of Contemporary Accounting & Economics11(2), pp.166-181.
5. Carnegie, G.D. and O’Connell, B.T., 2014. A longitudinal study of the interplay of corporate collapse, accounting failure and governance change in Australia: Early 1890s to early 2000s. Critical Perspectives on Accounting25(6), pp.446-468.
6. Carson, E., Fargher, N. and Zhang, Y., 2016. Trends in auditor reporting in Australia: a synthesis and opportunities for research. Australian Accounting Review26(3), pp.226-242.
7. Dobele, A.R., Westberg, K., Steel, M. and Flowers, K., 2014. An examination of corporate social responsibility implementation and stakeholder engagement: A case study in the Australian mining industry. Business Strategy and the Environment23(3), pp.145-159.
8 Hay, D., Stewart, J. and Botica Redmayne, N., 2017. The Role of Auditing in Corporate Governance in Australia and New Zealand: A Research Synthesis. Australian Accounting Review27(4), pp.457-479.
9. Martinov-Bennie, N., Soh, D.S. and Tweedie, D., 2015. An investigation into the roles, characteristics, expectations and evaluation practices of audit committees. Managerial Auditing Journal30(8/9), pp.727-755.
10. Miglani, S., Ahmed, K. and Henry, D., 2015. Voluntary corporate governance structure and financial distress: evidence from Australia. Journal of Contemporary Accounting & Economics11(1), pp.18-30.
11. Stafford, A. and Stapleton, P., 2017. Examining the Use of Corporate Governance Mechanisms in Public–Private Partnerships: Why Do They Not Deliver Public Accountability?. Australian Journal of Public Administration76(3), pp.378-391.
12. Yigitbasioglu, O.M., 2015. External auditors' perceptions of cloud computing adoption in Australia. International Journal of Accounting Strategic Information Systems18, pp.46-62.