¶ … accounting serves as a means of prioritizing business activities. In many instances, business has limited amounts of resources and a seemingly infinite amount of methods in which to deploy them. For large, multinational corporations the problem is compounded as various departments jockey to receive the maximum amount of funding for their own projects. By accounting properly, management can better ascertain which projects will be fully funded and which project will not be funded. This prioritizing ensures that the business enters markets or engages in activities in which it has relative competitive advantages in.
Accounting is therefore used to better assess the risks and behaviors embedded within these profit maximizing activities. Enron, Tyco, and WorldCom have proved that a profit motive without an audit or risk assessment can be detrimental to society. In fact, an independent audit assessment should be conducted to avoid conflicts of interest while protecting the public at large.
Cardinal and Coyote were correct in their approach to due diligence and risk assessment. Due to profit maximizing motives and misaligned incentives, management has incentive to portray the best (or sometimes worst) results it possibly can. These accounting tricks however do not accurately portray the economic reality of the underlying business. In many instances, aspects can be hidden from the view of an investor who does not conduct the proper due diligence. For example, companies currently uses off balance sheet financing through operating leases to hide leverage from investors. Companies may capitalize interest expense to portray a higher solvency ratio. Although less pertinent...
diligence Checklist An appropriately constructed due diligence checklist, according to the article entitled "Due Diligence: The Critical Stage in Mergers and Acquisitions," attempts to answer such vexing questions for a venture capitalist as if indeed the product in question "is what he or she thinks it is." In other words, is the venture capitalist in question really and truly buying the company or an interest in the product that is
Mergers & Acquisitions One of the more fascinating and complex part of corporate news and maneuvering is when companies engage in mergers and acquisitions as a means to further their growth, development and diversification. This report shall look at two companies in particular, those being Mattel and Texas Instruments. After conducting a thorough literature review, questions about both firms will be posed and answered. While there is more than one way
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
production/income and so on. Some companies also include quality assessments as part of their analysis of department efficiencies. 5.Explain the role of the budget in the business control cycle. Budgets can be used to help a firm meet goals and objectives. The business control cycle consists of four steps. The first is setting the standard, that is, creating the budget. The next is recording the performance of the company's departments. Third,
In this case, it was a $4.9 billion bank account. However, credit would have been granted against an asset like that. Finding such an account did not exist, banks would have wanted their money back, and Parmalat would not have had it. This would be grounds to take the company into insolvency, especially if somebody at Parmalat was counting on that account to pay off its debts. 4. These fraudulent
Ethics and Accounting - Financial Decision-Making Ethics in Accounting and Financial Decision Making The article Ethical guidance and constraints under the Sarbanes-Oxley Act of 2002 by R.M. Orin (2008), espouses the belief that the Sarbanes-Oxley Act did not go far enough in its desire to stop unethical financial practices by businesses. The article addresses what the Act actually does, which is to help companies practice more due diligence and lessen the chances
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