Accounting is the language of business. It allows shareholders, creditors and stakeholders and management gauge the overall performance of the business enterprise. Through the results of this financial evaluation, potential investor or creditors can better assess the economic realities facing the company. This allows for society to make better informed decisions as it relates to capital distribution. Well run companies that earn high returns on capital, often garner of higher share of societies financial capital. Likewise those business or industries that don't earn a high enough return to compensate investors for the risks they are taking, do not obtain large amounts of capital. The technology industry for example, earns a high returns on capital and can therefore earn large inflows of investor capital. The airline industry however, earns abysmal rates of return and can therefore have a hard time raising capital. Accounting forms the basis of this decision making on the part of shareholders, creditors and stakeholders. Without truthful accounting the reflects economic reality, many error can be made (Cellan-Jones, 2005) When reflecting on the Cendant case, management didn't fairly and adequately represent the true economic performance of the business. Instead, they mislead shareholder into believing the firm was doing better than it actually was. This, as the case illustrates,...
Due to this principle-agent problem, Cendant management did not perform admirably with respect to shareholders.
However, they have also changed the face of the accounting profession in a way that will affect the education and conduct of accountants in the future. In the future, the accountant will have to do more than to balance the books. In order to understand the potential educational requirements for accountants in the future, we will examine how they have changed historically and then apply the changes that have
Accounting Theory Why accounting research has had so little impact on preventing such failures in accounting practice? The modern economic society has seen many scientific researches that have been directed at establishing the nature of performance of economic activities. The present world is a literate society that depends on the technicalities of life and assumption of activities as they happen in the natural society. In order to have a genuine avenue of
Sarbanes-Oxley Act of 2002 in reducing fraudulent financial reporting Introduction to Fraudulent Financial Reporting Available research on financial statement fraud relies mostly on anecdotal evidence (for example, Wells, 2001, 2002, 2004a, and 2004b; Rezaee, 2003). This evidence offers advice on how mechanisms related to the fraud triangle can be curtailed. It leads to theoretical sense to reduce factors which lead to more instances of fraud. However, deterrence and established deterrence methods
Another expample, as Dahlin (2007) notes, WorldCom was in the heart of one of the largest accounting scandals in history. Add to this the Wal-Mart effect of business in general, with companies having to compete with Wal-Mart's low costs, made possible partially due to their low wages, failure to pay overtime, nonexistent benefits, and resistance to unionization, and a ripple effect has been cast on the waters, causing other
The concepts in this article relate and apply to my former organization because the organization did strive to maintain the highest ethical standards, and did treat their clients professionally and ethically. It was a good model for a young accountant to follow, and I do not believe they could improve on the organization's ethics, unless they held their accountants to even higher standards of excellence. Ethics is primary in accounting
Accounting Theories and Business Decisions: The Business World Case Facts Application of theories Other cases of stakeholder theory application Accounting theories and business decisions: The business world There are many theories that explain the complexity of relationship between different groups of people directly and indirectly related to an organization. Two of the most comprehensive and most discussed theories are stakeholder theory and agency theory. Both the theories describe what the main purpose of each group
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