Category: Accountancy

Introduction

A lease is a contract enforceable by law which defines an agreement between a lessor (owner of property) and lessee (renter of a certain property). It defines things like the duration of the lease agreement, the amount of rent, and any other conditions defining the lease agreement. When a business has acquired properties through a lease agreement, it must report in its financial statement as prescribed in ISA 17. Discussions are underway by the International Accounting Standards Board (IASB) to change the system (ISA 17) which is expected to take full effect on June 2011 (Kuczborski 2010). This paper looks into the decision to change the new system; it will look into advantages and disadvantages analyse how it will affect financial accounts of Morrisons Limited and finally as a conclusion give the writers opinion.

Changes in ISA 17

Financial Accounting Standards Boards (FASBs) has defined how leases are to be accounted for since 1976; however there have been some issues brought about by the accounting methods; these issues are,

• The mode recognises more than one accounting methods (it does not specifically have a defined way of accounting for leases).
• The flexibility of methods adopted can allow manipulation of financial accounting data.
• The method recognise contractually liability and at the same time accounts for asset acquisition.
• The disclosure and the assets are not reflected in the balance sheet and thus offers an off balance sheet liability (IFRS 2010).

The international accounting bodies recognized these needs and in March 2009, FASB and IASB, represented a proposal which recommended for changes in the accounting branch. The major proposal they represented was that when accounting for leases, they should be included in balance sheet for the lessee and the lessor (Kamal, Habif & Wynne 2010).

Advantages of the Proposed Changes

Will assist in making better decision

The change will result in better financial statements which can assist people who make their decisions based on financial statement have better information. Their involvement in the balance sheet as liabilities (rental charges) and the asset according to its nature removes the off balance sheet liability that had existed for a long period of time. This transparency is good for sound decision making.

Will assist in upholding integrity in management

When the system is fully in place, it will control manipulation by management accountants to fit their accounting agendas. The way of accounting will be well defined and structured to seal loopholes which have been used for manipulation (Nobes & Parker 2008). This invention will offer the accounting method required. This will be so because the new changes will define only one way of accounting for leases. Financial statements are management tools, which assist in making decisions.

Will assist in financial comparability

For better accounting and comparability of financial accounting and better decision making, there is need to have a similar accounting method. When a uniform standard has been developed then comparison in similar industries will be easier. This is because there is a similar platform that companies are using. Making managerial decisions will thus be from an informed decision. There are times that a business may require some expert assistance in a certain area; the experts (especially financial advisers), use published accounts to advise the company accordingly. If the accounts are prepared in a way that they give the true status of the company, the quality of the advice they are likely to receive will be enhanced. This leads to a general good performance of the company (Christy 2010).

Removes wrong impression previously given by the balance sheet

The system realizes that there are some elements in the balance sheet that can give the wrong impression to those who depend on it for their decision. One of these items is intangible assets. Consistency is another area of great interest to the users especially lenders and creditors. The way to measure the level of consistency, which in turn shows the level of efficiency of the management, is the use of accounts that do not have a lot of deferred payments. This is because they will show the trend that the business has followed all along (Mirza & Orrell 2008).

Disadvantages of the Proposed Changes

Its an imaginary disclosure

The method recognises that leased assets should be shown in the balance sheet. This is not true transaction since the definition of assets according to International financial standards does not include leases. This is like a contradiction of accounting frameworks.

Gives an impression that a company is highly geared

Secondly, the move requires that rental fees should be recognized as liabilities; this will show a company as highly geared. The cost of lease is expensive than other ways of acquiring capital and thus when included in accounting statements, it can show a reflection of a bad credit policy which is not the case always.

Expensive in maintenance and evaluation

Managing the leases will be on real time basis where a company will require up-to-date information on the estimate they have to make on the lease. This is an added burden to a company; both the lessee and lessor. The presence of a lease in a balance sheet will make the debt portfolio to grow and thus when a company is being evaluated by banks and other capital lenders they will see it as if it has a high financial obligation and thus avoid business with it; this is to the disadvantage of the company (Barry and Jermakowicz 2010).

Changes in a Company

Company brief background

Morrisons Limited is the fourth largest United Kingdom based fresh-produce supplier with 403 branches. It is in the business of selling fresh produce and green grocery with approximately 124,000 employees. According to the companys website, each week it serves a total of 9million customers. The company acquires 10,000 to 40,000 ft stores through leases. The companys profit before tax was 858million. The profit is a divided cover of 2.5.

The companys leases; land& building and plant and machinery for 2010 which are expiring are shown as follows;

The above information was given in notes to financial statements; it has not been reflected in the balance sheet (Morison Limited official website 2010).

The expected change in ISA 17 is expected to affect the companys financial ratios;

Gearing Ratio

If the company was using the new method, then long term debts would have been higher. On the other hand, the percentage financed by long term liabilities would have been higher. This is a reflection of a business that was more highly geared than the case is. The result is a misguidance to the investors.

Deferred Tax

If leases had been accounted for in accordance to the proposed way then there would have been an increase in the fixed assets. In the companys balance sheet the element of deferred taxation will occur. This will be interpolated as a financial obligation that the company aims to undertake in future.

Current Ratio

Since short term leases will be considered as short term liabilities, it will show a lower current ratio (Elliott & Elliot 2009).

Personal Opinion

The move to change accounting for leases is a move that is aimed at ensuring that financial statement report more precise information to the users. In the case of companies using leased assets they will have a right to use asset in their balance sheet. This will assist users of account to know the precise sources of capital of a company and can calculate the financial strength of the company more precisely. The proposal is clear that short term leases will be shown as short term liabilities and long term as large liabilities. This will assist further in understanding a business. In my opinion when an investor is making a decision to invest in a certain business, he needs to know the real financial standing of the company.

When leases are included in a balance sheet this objective is fulfilled. Lease has been used as a tool to manipulate financial statements since it was not reported with the financial statements. This was giving a loophole to management to have some hidden liabilities which is not a healthy move. Some companies have regarded the use of leases as a financing move and thus in cases where they are not reported in the balance sheet comparing such statement with those which have financing in their account is not right.

The only controversy that I feel the move will bring is that the ways leases are reported according to the proposal are treated as if they are assets acquired by a business. They are valued and given higher value or a lower value, however considering their nature, the contract of lease does not recognise any appreciation or depreciation of a lease. Secondly, the move will place a burden to management to monitor a lease from start to the end; they should know when the lease is changing, when the lease can be renewed, and the estimate value of the lease among other ongoing factors of the lease. This is an extra cost especially in todays hard economic times (ASB proposes changes to accounting for leases 2000).

Conclusion

The new recommended change in accounting for leases is going to offer higher reliability and integrity to financial accounts. It will disclose some information which was earlier accounted for as off-balance sheet liabilities. When the new system takes effect, all these will be reflected in the balance sheet. This will avoid any manipulation of accounts by companys management and at the same time assist investors to better analyse a company financial standing.

The proposed method will offer a platform and guidance to companies on a similar accounting method they have to adopt, this will create a better comparability platform of companies in the same industry. The problem is that the system will bring a burden to management to monitor a lease from start to the end; they should know when the lease is changing, when the lease can be renewed, the estimate value of the lease among other ongoing factors of the lease. However, the benefits of the new system far outweigh its shortcomings.

References

ASB proposes changes to accounting for leases. 2000. Management Accounting [British] 78.2 : 10. Academic One File. Web.

Barry J. and Jermakowicz, K. 2010. Wiley IFRS 2010: Interpretation and Application of International Financial Reporting Standards. New York, John Wiley and Sons.

Christy K. 2010. Major Changes in Accounting for Leases. Web.

Elliott, B. & Elliot J. 2009. Financial Accounting & Reporting, 13^th edition. New York, Prentice Hall IFRS. IASB 2010. IASB Meeting Summaries and Observer Notes. Web.

Kamal P., Habif, A. & Wynne, L. 2010. Accounting and Consulting. How changes in accounting for leases will affect your company. Web.

Kuczborski, M. 2010. Major Lease Accounting Changes on the Way. Web.

Mirza, H. and Orrell W. 2008. IFRS Workbook and Guide. New York: John Wiley & Sons.

Morrisons Limited official website. 2010. Financial Report. Web.

Nobes, C. and Parker, P. 2008. Comparative International Accounting. New York: Financial Times Press.

The development of the contemporary world proved that the personal success in modern life and the prosperity of the whole nation is possible applying new technologies and innovative conceptions. I fully agree with Pilat who notices, the recent slowdown has laid to rest several myths regarding the new economy: the business cycle is not dead, stock market valuations must be realistic and backed by sound profit expectations, and the ICT sector is not immune to downturns (Pilat 2003 p.9). It is not a surprise anymore that the economic benefits are connected today with the spread of ICT. ICT is foretold to be a key factor of economic growth in the years to come. It may be too early to tell how the role of ICT in growth and productivity performance will develop in the first decade of 21^st century (Pilat 2003 p.9). Contemporary scientists and researchers came to the conclusion that ICT would be driver of development:

Productivity growth in the United States, the main example of ICT-led growth and productivity improvements, has continued to be strong during the recent slowdown, suggesting that part of the acceleration in productivity growth over the second half of the 1990s was indeed structural. Productivity growth in Australia and Canada, both countries characterised by ICT-intensive growth, was also strong over the recent past (Pilat 2003 p.9-10).

To prove this opinion and to illustrate the importance of ICT in contemporary life spheres a new project Innovative ICT Solution For Definitive Accounting & Taxation was elaborated.

The major objective of this solution was to find ICT solutions for the company in all its aspects. In my opinion the solutions provided the company outline how to improve their processes and to give more finding the solution for hardware, software, marketing, customer requirements etc. I consider the approach of ProfinSoft which provided the pros and cons for different possibilities that Definitive accounting and Taxation company can explore and then on the basis of the analysis reasonable. A recommendation made at the end of the report to the project is the logical end of the project. In the product developed the researchers of our company tended to prove the importance of database and servers as data storage for the company provided by us according to the project. The solutions provided by ProfinSoft ensure that the smooth working of the company and more profits with the least amount of resources.

As ProfinSoft is rather new and there is a heavy competition going on at present in the field of Accounting and Taxation, there is a number of solutions that should be implemented. As the practice showed the increase in the number of solutions will only increase the efficiency of the company. There are several of them that I consider them to be important.

1. Improved Customer Relations Management. CRM is commonly used by most of the companies to maintain a good relation with its clients. The information integration application gathers customer data and information from different sources like website, transaction system and integrates them to a database server. In my opinion the main advantage is that its easy to identify and respond to the customer in an accurate and timely manner.
2. Customer Analysis Application. I consider this application to be useful to predict the customer actions as it helps to identify which of the services provided by the company is likely to be accepted by the customer.
3. Real-Time Decision Application. This application is important in the sense that it helps the customer find the required result for his query. The application synchronizes and coordinates directly with the web server. This includes business intelligence to determine and communicate with the most appropriate offer in real-time.
4. Personalized Messaging Application. I am sure that this application helps the customer to keep a record of his enquiry and process in his mail. This application offers either text or HTML pages, which is an automated mechanism to answer responses and direct recipients to their required result.
5. Corporate Blogging Application. The corporate blogging application is a blog published by the staff in the company. There is no restriction in blogging; everyone can do all the usual blogging like posting, editing, commenting etc to all the users including the staff members. The companys personal stuffs like competitive advantage and all other stuffs should be kept as a secret. In my opinion the main advantage is that there is a collective interaction of the customers, their ideas, feedbacks, trust and also the customer culture within the company.

Our product also proves the importance of website. In the present era everyone decides as to where to go depending upon the website. For the company to be successful it should have an attractive and simple website. ProfinSoft provides an attractive website which describes about all what is in it along with the functions that it provides. There is a Web portal in the website with which the clients interact with the definitive accounting and Taxation Company. I am ensured that this helps the visitor of the website to know what all are the information that are present about his enquiry in different sources. There can also be a separate section of Accounting Toolbox provided which helps the users to know their updated information. This can have informations like employee name, address, contact details, his company name, pay, tax, total pay, total tax paid, the fees given to definitive accounting and taxation etc. Website is an important solution because most of the customers select companies looking upon websites.

In my opinion the interaction of the group working on this project was effective enough. The task of every member became a brick that constructed the product developed.

Ammar Moughis worked on risk assessment, cost/benefit analysis, decision matrix, solution, proposal. He investigated such points as insufficient budget, server failure, bad business mapping, requirements not captured, security issues, employee resistance, and business change.

Ahmad Hassan worked on other course of actions, conclusions and recommendations. His Other Course of Actions provides two ways for companies: First, they do nothing to improve their IT infrastructure. They choose not to do anything to make more proficient their IT infrastructure. Secondly, to create a web based application to provide online service to their clients.

Roshan Sugathan task was to find alternative solutions such as Enterprise Resourse Planning Solution, Customer Relationship Management Solution, Application Service Provider Solution, Network Architecture Solution and suggested solution.

Chao YU worked on project background and description, the analysis. Here he outlined the main tasks of the product developed. The primary tasks that will be performing when Definitive Accounting and Taxation start business are provide accounting service for individuals and small business and taxation services for individuals and small business.

Majed Hamdan Alazmi elaborated introduction and executive summary operations of ICT solution. He declared that Definitive Accounting and Taxation aims at bringing a new revolution in the field of accounting. The company will start operating from the First of July 2010. The business is established by a group of accountants viewing to combine technology with accounting.

Speaking about my interaction with the group, I can define it as a coordinator of the project. Before making the product I investigated all the impacts ICT has on the economic growth. I have found out the following.

• Investment in ICT contributes to overall capital deepening and therefore helps raise labour productivity.
• Rapid technological progress in the production of ICT goods and services may contribute to more rapid multifactor productivity growth in the ICT-producing sector.
• Greater use of ICT may help firms increase their overall efficiency, and thus raise multifactor productivity (Pilat 2003 p.36).

Using this knowledge I decided to make totally new effective product that would be useful for many companies. That is why I gathered specialists in this field to make the project. My contribution to the group consists in maintenance the ideas of the members of the group. Any decision was taken only after its proper discussion and analysis. My personal contribution to the solution was in working on CRM system able to increase the clients reliability and pleasure.

In conclusion I would like to say that business process of Definitive Accounting and Taxation Company could reach at the maximum height of efficiency by using these ICT solutions. These solutions will not only do better their usual process but also give more opportunities to the company to grow exponentially. Definitive accounting and taxation will be a milestone in accounting in the years to come and will serve the country efficiently and effectively throughout.

References

Pilat, D 2003, ICT and Economic Growth: Evidence from OECD Countries, Industries and Firms, OECD Publishing.

Introduction

The theme International corporate reporting and financial accounting, is a vast area of research and study that goes a long way to elaborate corporate financial reporting and transparency. It is important to note that the need for proper transparency and suitable corporate financial reporting is highly essential. Due to many corporate financial accounting scandals in the past, national regulators and capital market institution have introduced new corporate reporting requirements so as to improve standards. Thus the significance of corporate financial reporting is seen to cover broad issues that seek to bridge a gap between corporate governance and corporate financial accounting, disclosure issues is one of the important aspects. In discussing disclosure issues, I will particularly focus on the voluntary versus mandatory disclosure aspects.

The reason as to why disclosure is required is because users of financial report, including employees, suppliers, management, shareholders, financial analyst, creditors and the state require such reports for decision making. It is thus of great importance published annual reports contain reliable information that is timely to enhance efficient decision-making. These published reports however have different extent and quality of disclosure that differs among companies as well as countries.

Most companies today are constantly looking for ways of increasing their market share and attracting capital. This makes it very important for information in the financial statement to be adequately produced; increase in market globalization has led to the need for harmonizing accounting standards that will be universally understandable and accepted. The formation of international accounting standard committee in 1973 led to the issue of more than 30 international accounting standards, which outlined the general preparation and disclosure of information in the financial statement.

Corporate transparency is determined depending on the information it discloses in the financial statements. If properly and accurately disclosed then a firms corporate image will be enhanced, marketability improved, acquisition of long-term fund enabled and cost of capital reduced. The international financial and economic problem has resulted in the need to enforce and improve financial reporting disclosures.

New developments on international accounting standards, corporate structure and legislation changes have resulted to constant review on this subject. Empirical evidence on mandatory and voluntary disclosures and the factors influencing them will enhance quality of reporting in financial statement. Study has shown that quality of corporate disclosure will influence the quality of investment decision made by investors; if the disclosure is sufficient then the current and potential investors will have confidence in the reporting entity.

Voluntary versus Mandatory disclosure

Disclosure has been defined as the provision of quantitative or qualitative information relating to a business entity in the annual reports. Mandatory disclosure can thus be referred to as that information which the companies are obligated to disclose by the accounting standards setting body, whereas voluntary disclosure refers to the release of certain financial information at the discretion of the reporting entity.

The factors that contribute to the existence of these two disclosures include the relationship between the risk preferred by the shareholders of the firm and the potential investors. The nature of the business associated with a firms disclosure, the structure between cash flows and the weight placed by existing shareholders and outside investors in the social welfare function determine disclosure policy. The quality of disclosure is determined by certain corporate characteristics. They include profitability, liquidity, audit size, corporate size, listing status, ownership structure and gearing.

Normally the non-profit making firms disclose less information so as to cover losses and the constantly reducing profit, whereas the profit making firms will disclose more information so as to be able to obtain capital in the best terms (Bujaki & McConomy, 2002). However, other nonprofit making companies may decide to release more information to the public to avoid undervaluation of the companys shares. Sometime aspects like the agency costs which are always higher in companies with more debt in their capital structure, show that disclosures tend to increase with leverage. Thus, companies with more debt ordinarily disclose more information so as to assure the providers of fund that the firm is less likely to bypass their covenant claims. Meigs (1993) argues that increased disclosure of IAS requirement enhances the monitoring role of financial statements, which in turn reduces agency costs.

The levels of mandatory and voluntary disclosure by those companies that are listed depend with the listing age (Sutton, 2004). This has shown that older companies are more likely to have more information in their annual reports so as to maintain and uphold their reputation, on the contrary less developed or newly started firms do not disclose a lot of information as it may be used by other competitors (Ali et al., 2004).

Mandatory disclosures

Mandatory financial disclosure varies in the way it is adopted from country to country. In some countries like USA and Japan most private company no matter how big they are, are not obligated to disclose their financial information. However, on the contrary European companies including most of their private companies are required to disclose certain information in their financial reports (Radebaugh et al., 2006). Mandatory disclosure of financial statements by private companies relates to a number of things in accounting and economics including: business formalities deregulation, credit information and investor protection. In essence, mandatory publication not only reduces the cost of business operation but also increases the credit worthiness or access to credit (Lewis, 2000).

There has been substantial controversy on the content of mandatory financial disclosure over the years, in the current framework of the USA, mandatory disclosure by public companies are by law required to disclose financial information to the public on a periodic basis as well as other important information about the company. The fact that public companies shares are traded in the stock exchange, mandatory disclosure of information will have a direct impact on the value of the public companies.

Mandatory financial disclosure in a way does play a major role in economic growth; this is because it is an important criterion of the legal system intended to safeguard the firms transaction with creditors and investors. Providing this kind of protection plays a role in the development of financial markets and this is an important element of economic growth.

The effects associated with introduction of mandatory disclosure include the significant decrease in risk for new issues as observed by Glautier (1997). Izedonmi and Ola (2001) discovered that many small firms delisted while those previously disclosing values of the firm increased. Mandatory publication of financial statement by public companies as well creditor protection may be a precondition for freedom among investors (Ezejelue, 2001).

The foundation of modern financial market is as a result of mandatory disclosure, thus many requirements on the companies that disclose their information to the public are imposed. This requirement range from quarterly and annual financial statements to extra ordinary disclosures as and when the material event occurs. Common characteristic of these disclosures is that: they are part of the regulatory process, are extremely relevant to the firms future cash flows and are not at the discretion of the companys management.

Mandatory disclosure regulation has examined the consequences of corporate disclosure (Elliot & John, 2005), which may or may not be socially desirable. Mandatory disclosure rule may be implemented so as to provide information to the potential investors and this makes part of the information to be available to the public. Potential investors are normally interested in the quality of the information that is disclosed rather than the private information.

Mandatory disclosure needs sometimes to be verified by an external entity like an auditor, an appraiser or a rating agency. Thus to capture the cost of verification then an assumption has to be made that any report either present or absent must be verified in conformity with the current disclosure policy. These assumptions of the verification process have several properties such as; lack of the need to verify a firm that has low cash flows and cost of verification increasing as a result of the unfavorable information that must be verified.

The major disadvantage of mandatory disclosure is that whenever a company publishes its accounts it benefits the competitors as well as third parties in a way that the disclosing company may not recover or be compensated. This benefit include improvement in the accuracy and predictive power of the credit rating models, allows comparative analysis when allocating capital among industries by the investors and making decisions for regulators and policy makers.

Mandatory disclosure items, as outlined by the international financial reporting standards, include presentation of financial statements (IAS 1), inventories (IAS 2), event after the balance sheet date (IAS 10), income taxes (IAS 12), property, plant and equipment (IAS 16). Revenue (IAS 18), borrowing cost (IAS 23), related party disclosure (IAS 24), consolidated and separate financial statement (IAS 27) are also included. Others include investment in associate (IAS 28), interest in joint venture (IAS 31), financial instrument presentation (IAS 32), impairment of assets (IAS 36), intangible assets (IAS 38) and business combination (IFRS 3). However, there are other mandatory disclosure items apart from the ones listed above, it is important to highlight that not all the above items are mandatory in all countries as it depends highly on the adoption of international standards by this countries (Alexander et al., 2003).

Voluntary disclosure

The issue of voluntary disclosure has been a topic of interest across financial markets in countries like United States, United Kingdom and the Asian regions. Voluntary disclosure is highly influenced by the management of a company as well as the ownership patterns (McConomy, 2002). Studies have also revealed that the extend of enterprises that the government have invested in or are shareholders also influences the levels of voluntary disclosures, the purpose of which is to support the government initiative to promote transparency.

Corporate voluntary disclosure represents free choices by the company management to provide information to users of the financial reports that are published annually. It is important that the users, preparers as well as the accounting policy makers to understand why firms disclose voluntary information (Barrett, 1975). Factors that have played a major role in enhancing voluntary information disclosure include; firms financial status, corporate governance and ownership patters.

Studies on voluntary disclosure dates back to the 60s, it showed that voluntary disclosure was associated with a companys specific features such as size, gearing, listing and managerial ownership (Blake, 1981). Recent research has however shown that loss making firms can derive a lot of benefit by voluntary disclosing information as compared to the financially healthy ones.

Independent directors have an influence on the board and highly control management behavior. It has been argued that the more composition of independent directors on the board, the more faster management will be challenged to take advantage of the available opportunities in the market and thus this firms will be expected to disclose more voluntary information (Henry, 2006).

Agency theory has shown that there is a positive relationship between management interest and the extent of voluntary disclosure; this has been elaborated by Henry (2004) after his study revealed that the level of shareholding by management is positively related to the amount of information given about earnings. Voluntary disclosure has also been effective in reducing agency cost that is normally high for firms with more debt in their capital structure. This is achieved by facilitating suppliers assessment of firms ability to meet its debt (Alford, 1993). This information provided could be important to the companys future growth as well as increases the debt holders confidence in that the firm will be less likely to deviate from their covenant claims.

Large companies have a competitive advantage as result of voluntary disclosure as compared to smaller firms who perceive that disclosure of certain information will make them be at competitive disadvantaged position compared to larger firms in the industry. Thus, as a result the cost of competitive disadvantage being high in small firms makes them less likely to disclose additional information, while larger firms may release addition information due to the low cost of competitive disadvantage (Jorissen, 2003). Due to these factors, large companies can rip many benefits by voluntarily disclosing information as compared to small firms. However, large companys production of differentiated products that are concentrated in active markets can make voluntary disclosure damaging to their competitive position.

Voluntary disclosure can have damaging effects to major services provided to the company. This can be seen in the sense that if many firms stop publishing their account then information needed by users will be unavailable which may lead to worse assessment of credit risk for all companies in the economy. Thus, the need for making voluntary disclosure rules should not be detrimental to the importance of mandatory disclosure in any economy (Ball, 2006).

Voluntary disclosure checklist items include general corporate information like the mission statement, information about directors like their functions, capital market information like the stock exchange code, risk management issues associated with the Organization, corporate governance report, environmental liabilities and cost, and corporate social responsibility report.

Conclusion

The cost and benefit analysis on the scope of mandatory disclosure on public reports need to be addressed with caution. Mandatory disclosure can also be used as a tool of developing policies that aim at reducing costs, enhance value (by administrative reforms) and achieve retrieval systems. In so doing, it will enable achievement of the use of new information technologies in assessing the credit risk of companies. Failure to disclose certain information by most companies is normally directed at tax evasion and fraud and has no merit in the corporate social perspective.

The major limitation associated with voluntary disclosure is that they are not reliable for users. This is because such disclosures are not normally guided by international standards though international standards board highly advises its applicability in companies.

References

Alexander, D, Britton, A & Jorissen, A 2003, International Financial Reporting and Analysis, Thomson Learning, Surrey.

Alford, A, Jones, J, Leftwich, R & Zmijewski, M 1993,The relative informativeness of accounting disclosures in different countries, Journal of Accounting Research, vol. 31, pp. 183-223.

Ali, MJ, Ahmed, K & Henry, D 2004, Disclosure compliance with national accounting standards by listed companies in South Asia, Accounting and Business Research, Vol. 34, no. 3, pp. 183-199.

Ball, R 2006, International Financial Reporting Standards (IFRS): pros and cons for investors, Accounting and Business Research, International Accounting Policy Forum, pp. 5-27.

Blake, J 1981, Accounting Standards, Longman Incorporation, London.

Barrett, ME 1975, Financial reporting practices: Disclosure and comprehensiveness in an International Setting, Journal of Accounting Research, Vol. 14, no.1, pp. 10-26.

Bujaki, M & McConomy, BJ 2002, Corporate governance: Factors influencing voluntary disclosure by publicly traded Canadian firms, Canadian Accounting Perspectives, Vol. 1, no.2, pp. 105-139.

Elliot, B & John, J 2005, Financial Accounting and Reporting, Pearson Education Limited, Essex.

Ezejelue, AC 2001, A Primer on International Accounting, Educational Books and investments Limited, Port Harcourt.

Glautier, MW, & Underdown, B 1997, Accounting Theory and Practice, Pitman Publishing, Kent.

Izedonmi, PF & Ola, C 2001, Intermediate Financial Accounting, BOFIC Consulting Group and Centre for High Performance Organizations, Benin City.

Lewis, R & Pendrill, D 2000, Advanced Financial Accounting, London Pearson Education Limited.

Meigs, RF & Meigs, WB 1993, Accounting: The Basis for Business Decisions, McGraw Hill Inc, New York.

Radebaugh, LE, Gray, SJ & Black, EL 2006, International Accounting and Multinational Enterprises, John Wiley and Sons, New York.

Sutton, T 2004, Corporate Financial Accounting and Reporting, Pearson Education Limited, Essex.

Summary

As far as the topic of finance is concerned, it is first of all necessary to understand the difference between the two notions that some people usually use interchangeably. They are accounting and finance, and the exact line drawn between them facilitates the further understanding of finance as the science and as the practically applicable matter (Finker & Ward, 2006). Thus, accounting is mostly a passive work which presupposes compiling financial reports of all kinds and dealing with great amounts of documentation: Accountants primary function is to develop and provide data measuring the performance of the firm, assessing its financial position, and paying taxes (Castro, 1).

Finance, on the contrary, is an active work connected with decision making and strategic development of an organization: It uses the financial statements prepared by accountants to make decisions about the firms financial condition and to advise others about possible losses and profits (Castro, 2). Thus, it is evident that the main difference between accounting and finance lies in the former being the tool for the successful conduct of the latter; accounting is the assistance to keep ones finance in order.

Managerial and Financial Accounting

Needless to say, there are certain types of accounting existing in the world. The major ones include managerial accounting and financial accounting. The main difference between the two types mentioned lies in the context they are used in and the purpose of their use (Kaplan, 392  393). Thus, managerial accounting is an occasionally needed accounting process carried out for making decisions and controlling the companys financial information. Managerial accounting has the free form of its conduct and can be carried out without the help of external specialists and auditors. Nevertheless, it is often detailed and quite focused on the specific issue, e. g. productivity decrease, etc (Kaplan, 392  393).

On the other hand, financial accounting is the procedure that is traditionally carried out at every company and is aimed at monitoring the financial state of this company on the regular basis (Finker & Ward, 2006). In the sphere of health care, this difference is important as mostly the financial accounting is used due to the specific type of funding and payments that health care organizations obtain.

Financial Risk and Financial Return

Further on, the concepts of financial risk and financial return come into play as one develops his or her knowledge in finance. These two concepts relate to each other as the reason and the consequence. In other words, risk in the financial context is the concept used to denote the possibility of the loss of a certain amount of the invested finance (De Bondt, 357). Such a loss is also called the state when the actual financial return is less than the expected one.

Thus, financial return is the amount of investment obtained after the conduct of a transaction or any other financial operation, while the financial risk is the possibility of getting less return than one expects (Reinhardt et al., 11). In the area of health care, these concepts are especially important as far as this area is connected with numerous contingencies including health issues of patients, the inability of the potential funders or investors to present the money they planned to, etc. As numerous peoples lives are dependant upon the balance of financial risks and returns, it is necessary to be careful choosing the investors and partners in this sphere.

Complex Health Care System in the US

On the whole, the health care system in the United States of America is characterized by a great degree of complexity (Finker & Ward, 2006). This happens due to the complicated structure of health care in the country, which can be compared to the US political organization or the structure of the court system. Health care in the US consists of mainly privately-owned organizations, while federal, state, and local health care facilities are still present (Finker & Ward, 2006).

Although the general amount of non-profit health care facilities remain at the level of over 70% in the US, profit-oriented organizations can also be observed. The system of health insurance adds to the complexity of US health care as well. All the employed people have to obtain health care insurance from the state through their employers or personally (Reinhardt et al., 14). Moreover, those who are temporarily or permanently unemployed have to obtain insurance through their family members that have jobs or can afford to buy the insurance at their own cost.

All these facts facilitate the development of the attitude about the US health care system as about the complex one (Creese, 311). And though it is universally accepted as one of the most effective in the world, the US health care still demands reforms to be more accessible to clients who want to see the clearer structure of the institution responsible for their health and lives.

Ways in Which Health Care Organizations Get Paid

The system of payments in USD health care is also complex. While the non-profit organizations obtain the bulk of the funding from either local or state governments, the latter ones are funded exclusively through the charges that patients have to pay for the services that private profit-oriented hospitals offer (Creese, 315). First of all, in both private and governmental health care facilities there is a complex system of insurance discussed above.

Payments for the very insurances are accompanied further by payments for specific services obtained by the patient in case of an emergency with his or her health. The fact that more than 85% of the US population has health insurance allows saying that the funding of the health care facilities is carried out regularly and properly (Reinhardt et al., 18). In the cost of insurance, there are parts funded by the very people buying the insurance as well as by the governments and certain investment organizations which are different from every particular region.

Gross Charges Are Not Revenue in Health Care

What cannot be included in the list of revenues of any health care organization are the gross charges that this organization has for the services it presents. The first reason for this is the system of health care insurances mentioned above. The insurance presupposes that the part of its costs are paid by the very health care system client while the rest is funded by the government, either state, federal, or local, and by other interested or charitable organizations (Hines, 252). Therefore, the health care facility receives only a part of the set gross charges for its services, and moreover, it is diminished by the flexible system of discounts and partnership agreements with various organizations and companies (Brief and Peasnell, 1996). Thus, gross charges for health care services are nominal, or face, values for those services, while the actual payments obtained by hospitals for those services are smaller. That is why gross charges cannot be considered as revenues for health care organizations.

References

Brief, R. P. and K. V. Peasnell (1996). Clean Surplus: a link between accounting and finance. Taylor & Francis.

Castro, D. (n. d.) Finance, An Exciting Career. School of Business, LeTourneau University, 1  4.

De Bondt, Werner P. M. (1993). Betting on trends: Intuitive forecasts of financial risk and return. International Journal of Forecasting, 9(3), 355-371.

Finker, S.A., & Ward, D.M. (2006). Accounting fundamentals for healthcare management. Sudbury, MA: Jones and Bartlett.

Hines, Ruth D. (1988). Financial accounting: In communicating reality, we construct reality. Accounting, Organizations and Society, 3(4), 251-261.

Kaplan, Robert S. (1984). The Evolution of Management Accounting. The Accounting Review, 59(3), 390-418.

Reinhardt, U. E. et al. (2004). The U.S. Health Care Spending In An International Context. Health Affairs, 23(3), 10  25.

Creese, A. (1991). User charges for health care: a review of recent experience. Health Policy and Planning, 6(4): 309-319.

The paper tries to detail why it is a requirement for companies to adhere to the generally accepted accounting principles when following the rules of financial reports. Starbucks has been used in the paper as an example as they are a major company that adheres to the set standard all over the world.

Reporting control is a requirement under the law for companies that are registered in the security exchange; the report includes the following, a statement outlining the managements responsibility for establishing and maintaining adequate control internally over the reporting on finances. The statement is used in the identification by the management to evaluate the effectiveness of internal oversight over the finance reporting, and finally a statement from the company that shows that the auditing company is registered under the law (Delaney & Whittington, 2005).

The advantages of internal control vary and the most common include, preventing and in some cases detecting a fraud, this is done through the fraud risk assessment (assessment of scenarios in which theft and fraud might occur and determining how to fix them). As at the financial year of 2008, the management at Starbucks provided, as required by the law an internal control that included financial reporting, assured that transactions at Starbucks were recorded as needed which wass used in the preparation of financial statement.

A segment reporting is a requirement of the business to report information that involves finance. The reported segment includes a factor that the organization used in identifying reportable segments. Other materials which are non-cash items, the result of the section whether profit or lose is 10 percent or more and finally if the total assets of the segment are 10 percent or more. Lastly the type of services and products sold by the division etc.. Starbucks used the income profit for the financial year to come up with the segment information (Geereddy, 2014).

Whenever the companies like Starbucks are preparing financial statements, the board of management makes use of estimations that are based on the assumption (Stickney, 2010). The estimates are useful in pointing out the life of some property and how useful it is to the company this is due to tear and wear and the depreciation values.

Lastly, reporting of estimations and assumptions acts as a financial instrument in settlement of the acquisition of the subsidiaries, so estimation relates to the identification and fair value for measuring the acquired asset (Gilbertson & Lehman, 2011). At Starbucks, depreciation of property, equipment and plant under capital lease is provided by a method of estimates of useful lives which usually cover 2 to 5 years for apparatus and 30 to 40 years for structures.

Under fair value, disclosure for investment helps provide readers with information that is new to the statement viewers, this assists them in decision making on whether to invest in such a security (Delaney & Whittington, 2005). Fair value helps users in recognizing the gains and losses on the assets and even liabilities as they transpire which is of more help to the user.

Over the last few years, Starbucks has been growing, it is reported that its revenue reached 16.1 billion dollars in the final quarter of 2014. The information is available to anyone who is interested in its review for stock investment.

It is a requirement that all leases must be reported on the companys balance sheet, this is important since lease is easier to get than a loan for buying all the fixed assets. Also, the amount paid monthly for the lease expenses fall under the lease expenses; this means that the amount will be deducted from the total income.

The importance of lease reporting that fall under the accepted principle of accounting is that it shows the debt of the company that might be invisible on the balance sheet. At the Starbucks, they mostly lease retail stores, warehouse and distribution facilities, and office space, this is calculated on the lease accounting (Geereddy, 2014).

Reference

Delaney, P. R. & Whittington, R. (2005). Wiley CPA exam review. Hoboken, NJ: Wiley

Geereddy, N. (2014). Strategic Analysis of Starbucks Corporation. Web.

Gilbertson, C. B. & Lehman, M. W. (2011). Century 21 accounting. Mason, Ohio: South-Western.

Stickney, C. P. (2010). Financial accounting: An introduction to concepts, methods, and uses. Mason, OH: South-Western/Cengage Learning.

Introduction

This refers to a process where a firm evaluates reviews and compares its internal departmental performance against the set standards and where there is deviation a necessary step is taken accordingly. Any strategy adopted by a firm will have a direct impact on the performance and hence its survival. This explains why the management is always under intense pressure more so when setting strategies for their enterprises.

Financial benchmarking

Financial benchmarking refers to a comparison of an enterprises financial performance over time against the firms standard target. This could be achieved by analyzing different consecutive financial reports from different financial periods. It can be in the form of financial ratios, cash flows, and etc.

Its advisable for an enterprise to compare its financial performance over a period of time. This can help in setting a new strategy, especially where an enterprise is operating in a competitive environment and the performance achieved is below the average compared to its arch business rivals.

Impacts of strategic benchmarking on financial benchmarking and traditional accounting methods

Strategic benchmarking will override financial benchmarking on the following ways;

Staff

In a business environment where competition is so stiff firms will employ a highly qualified professionals who are unique as well as multi-skilled in different fields to counter rivals strategies. This will enable a firm to enter a market niche or lock in all its clients. If a firm does not become innovative then its competitors will take advantage. When this happens the firms share will fall and the value highly depreciates. This will have a direct impact on the basic financial ratios like ROCE and ROI respectively.

Motivation

When a firm compares its employees motivational level over time and finds that they are less motivated, the effect on financial benchmarking is that there will be less output level. The enterprise might experience stock-outs which will eventually lead to lost sales and hence low profits recorded.

Organizational structure

An organizational structure refers to the sub-total ways in which a firm divides its work with respect with its core functional objectives. In times of unprecedented uncertainties a flexible structure is desirable, this will enable an enterprise to adjust to the environmental changes so that it matches it, competitors. Adopting this management style might enable a firm to benefit from economies of scale arising from this nature and hence record higher margins. This will make profitability ratios rise favorably and thus affecting financial benchmarking.

On the other hand, a rigid and bureaucratic organizational structure will leave no room for change. This structure will make the company to be static and susceptible to attack by business rivals, in this situation adjusting to uncertainties becomes very difficult and the firm will always be over taken by it rivals. In this case penetrating a market niche or maintaining the already attracted clients will be cumbersome. The firms value might begin to fall gradually. Liquidity and profitability ratios will eventually fall.

Traditional accounting methods

Traditional accounting methods have come under immense criticism. This is because they do not give the accurate information and are therefore misleading. Some of these methods include: historical cost accounting and activity based costing. Current strategic benchmarking in most cases will be in conflict with traditional accounting methods. This is because modern day managers are dynamic and are ever conscious on company strategies, certain accounting policies and concepts which are not consistent with international accounting standards and international financial reporting standards would be abolished immediately.

Conclusion

Its important for a firm to carry a benchmark on its strategies at the end of every financial period. This will act as a communication channel to the management to act immediately incase of any deviation from the target plan.

International Accounting Standard 18 (IAS 18) addresses issues relating to revenue and the various instances whether or not revenue should be recognized. According to this standard, revenue can only be recognized to have accrued to an entity only if it meets a number of key conditions among them being: ..The company has transferred to the buyer the risks and benefits of major type, derived from ownership of the property (IAS 18 paragraph 14(a)) The company does not keep to itself any involvement in the management of the assets sold, to the degree usually associated with ownership nor retains effective control over them& (IAS 18 paragraph 14(b))

In instances where return exists on the specified sales, then specific consideration needs to be made on the transfer of risk and rewards of ownership of the specific goods and also the extent of the transfer of goods to the buyer needs to be ascertained. According to paragraph 16 of the standard (IAS 18), in a case where the entity retains a fundamental portion of property risks, the particular transaction will not be regarded as a sale and therefore no revenues will be recognized. Revenues are only recognized when there is sufficient certainty concerning the earning effort (Kieso, et al, 207).

This specific guidance is of significance to a company in cases where the transfer of rights or obligations of ownership does not exactly concur with actual transfer of title or transfer of possession to the new buyer upon sale, (Kieso, et al, 96) the transaction is evaluated on a sale or return basis. It therefore means that depending on the nature of the transaction and the terms of the transaction contract, the sale can only be recognized after the buyer confirms that the goods sold fit the description and purpose intended. The duration between sale and confirmation may be stipulated in the agreement of sale but if this is not the case, reasonable time should be allowed between sale and confirmation/return (Kieso, et al, 89).

In as much as sales with high rates of return can highly cause inventory to be misstated, returns are usually allowed in cases where the goods sent do not fit the specific description or the requirements of the buyer in terms of color, size amount , packaging or purpose. It should also be noted that goods sold may be returned if they are received later than the time they were intended (lapse of time).

Reasonable estimate of returns may be difficult to accurately estimate in circumstances where abnormal levels of waste materials occur in the course of the return. Other incremental costs such as storage costs and transportation expense may also make it difficult to accurately determine the cost of goods returned. Indirect costs of administration that may not necessarily be traced to the actual production of the goods in their present locality or condition may also make it difficult to estimate the value of returns.

In the valuation of all inventories, it should be noted that all stock under the control of the business are estimated at the lower of costs and net realizable value. This is in accordance to the accounting standard governing the valuation of inventory (IAS 2 Inventories). The Net realizable value of an item of inventory refers to the estimated selling price of the particular inventory during the normal course of transaction, less the estimated costs to conclude its production and maintain it into a sellable form. The essence of this preposition is that the cost of stocks of inventory is made up of all costs of acquiring the inventory as well as any other incidental cost incurred to put the particular item of inventory into its current position (Kieso, et al, 151).

Works cited

Kieso, Donald, et al. Intermediate Accounting. John Wiley & Sons: Hoboken, 2007. Print.

Introduction of Topic and Facts

The Financial Accounting Standards Board is an independent, non-profit organization that establishes specific accounting standards for companies in the private and public sectors. The set of rules is called Generally Accepted Accounting Principles or GAAP. The organization annually publishes the Accounting Standards Update (ASU) because the initial project for revenue recognition did not satisfy all requirements for all industries. The ASU published in 2014 discusses the revenue from contracts with customers earned by the companies (Financial Accounting Standards Board, 2014a). The update has three sections that discuss the summaries and amendments that constitute the revenue from contracts with customers, subtopics in the codification and status tables, and background information with conclusions.

The FASB revised its consolidation guidance, which could significantly affect some companies. The new ASU simplifies U.S. GAAP by removing entity-specific consolidation guidelines for limited partnerships (Financial Accounting Standards Board, 2014a). Additionally, it updates the evaluation of related parties, kick-out rights, fee structures, and other components of the consolidation analysis. The revisions repeal the FASB Statement 167 indefinite deferral for specific investment funds and replace it with a permanent money market funds scope exception (Financial Accounting Standards Board, 2014a). All organizations are impacted, but those in the financial services, real estate, and energy sectors are particularly under the influence.

Summary of the Financial Accounting Area & GAAP

The term GAAP (Generally Accepted Accounting Principles) refers to a set of widely used standards and accounting procedures for financial reporting. The acronym is pronounced gap. Definitions of concepts and guiding principles are included in GAAP standards, along with industry-specific regulations. The goal of GAAP is to guarantee that financial reporting is transparent and uniform from one public company to another and from one accounting period to another.

The process of documenting, compiling, and reporting the numerous transactions occurring from corporate activities throughout time is known as financial accounting. The creation of financial statements, such as the balance sheet, income statement, and cash flow statement, which document the operating performance of the firm over a given time period, summarizes these transactions. Work prospects for a financial accountant may be found in both the public and commercial sectors. The tasks of a general accountant, who works for oneself or herself rather than directly for a firm or organization, may be different from those of a financial accountant.

A technique for creating financial statements that records transactions irrespective of cash consumption are the accrual method of financial accounting. Journal entries may be made before an item is paid for, and certain financial accounting concepts take into consideration a transactions effects over time (as opposed to the entire impact being recorded in the period the cash impact happened). One can imagine the scenario where a business is paid $1,000 for advisory work that will be done the following month. According to the principles of the accrual system of financial accounting, the corporation is not permitted to record the $1,000 as revenue because, technically, no labor has been done and no money has been made. This transaction is recorded as a debit to cash and a credit to unearned revenue, a liability account, in accordance with the accrual method of financial accounting. The business clears the unearned revenue accounting and records actual revenue when it generates income the next month.

Unpaid costs are another illustration of the accrual approach of accounting. It is possible to imagine if a business was presented with a $5,000 utility bill for the month of July. The accrual method of accounting requires the corporation to record the transaction in July, even if the bill is not paid until August. The business records a credit to accounts payable in addition to debiting Utility Expenses. The credit is cleared after the invoice has been paid.

Detailed Discussion of the Case

As has been mentioned above, the ASU of 2014 draws attention to the revenue that companies earn from contracts with customers. The document was issued to meet various objectives that include removing inconsistencies in revenue requirements, explaining how to address revenue issues, and simplifying the preparation of financial statements (Financial Accounting Standards Board, 2014a). The document is divided into three sections, and each of them requires specific attention.

Section A

Being the first part of the larger document, Section A presents much useful and valuable information. On the one hand, amendments in this part codify the Boards decisions in the revenue project and create a new Topic 606, Revenue from Contracts with Customers (Financial Accounting Standards Board, 2014a, p. 13). This aspect is essential since it determines how information should be reported to users of financial statements. On the other hand, Section A introduces Subtopic 340-40, Other Assets and Deferred Costs-Contracts with Customers (Financial Accounting Standards Board, 2014a). This subtopic includes guidance on accounting for the incremental costs of obtaining a contract with a customer and for the costs incurred to fulfill a contract with a customer (Financial Accounting Standards Board, 2014a, p. 18). That is why one can stipulate that Section A presents valuable information.

Section B

It is reasonable to remember that the ASU of 2014 introduced changes and improvements to the previously existing regulations. Thus, Section B includes amendments that conform guidance throughout the Codification as a result of the Boards decisions in the revenue project (Financial Accounting Standards Board, 2014a, p. 13). This part of the larger document includes the strikeout text that is preceded by its corrected interpretation and formulation. For example, the revenue definition was totally rewritten to create a shortened version (Financial Accounting Standards Board, 2014b). Furthermore, one should add that Section B does not always rewrite older information with the new one. This section can add new details, and this information is underlined to make it easier for readers to locate it (Financial Accounting Standards Board, 2014b). Thus, Section B provides its target audience with useful details regarding the topics under consideration.

Section C

Even though Section C does not provide much new factual information about revenue and companies, it is still significant. This part includes background information and presents conclusions of the entire document (Financial Accounting Standards Board, 2014c). In particular, Section C describes how the ASU was adopted, who participated in its adoption, and what procedures took place (Financial Accounting Standards Board, 2014c). This and similar information is significant because it allows readers to have a better understanding of the ASU and its implications. That is why it is not reasonable to undervalue the importance of Section C.

Personal Conclusion

I can firmly state that the ASU is an important and perfectly composed document. It is challenging to argue with Reimers (2011), who states that quality and timing are essential phenomena when one deals with accounting procedures. That is why it is necessary to be aware of the existing regulations and know how and when these should be applied. Simultaneously, I agree with Smith (2019) that it is beneficial for a future career to become familiar with specific information early. That is why I have attentively read the ASU to understand why this regulation is significant and how it can be applied. It is reasonable to believe that the information presented above will be beneficial for my future professional activity because I know much information about revenues that companies receive from contracts with customers.

General Conclusion

The Accounting Standards Update is an important regulation that discusses the revenue from contracts with customers earned by the companies. The Financial Accounting Standards Board is an author of this regulation that is essential in the sphere of accounting. In particular, one should admit that the document is issued regularly, and the current analysis deals with the 2014 version. The Accounting Standards Update consists of three parts, and each of them presents significant information. Section A consists of essential topics and subtopics that refer to revenue and how organizations should approach it. Section B introduces essential amendments that clarify the regulation and make it up-to-date. Finally, Section C brings background information about the Accounting Standards Update creation process and formulates conclusions. It is impossible to state that any section is more significant than the others, which denotes that the target audience should carefully read the entire regulation. In conclusion, there is no doubt that this information is valuable for people who want to become high-quality professionals in the accounting sphere.

References

Financial Accounting Standards Board. (2014a). Accounting standards update: Section A [PDF document].

Financial Accounting Standards Board. (2014b). Accounting standards update: Section B [PDF document].

Financial Accounting Standards Board. (2014c). Accounting standards update: Section C [PDF document].

Reimers, J. L. (2011). Financial accounting: A business process approach (3^rd ed.). Pearson.

Smith, M. (2019). A compilation of accounting case studies (Publication No. 1081) [Undergraduate Thesis, University of Mississippi]. Web.

Introduction

The reporting of financial information is of great essentiality to both the organization and the other stakeholders. Accounting information is reliable to the extent that it is verifiable, is a faithful representation of the underlying economic reality, and is reasonably free of error and bias (Young et al, 2007, p. 38). It is therefore a requirement that companies publish their financial statement at the end of every trading period.

The society requires this information to be up to date and in accordance with the financial regulation boards and accounting standards such as the GAAP and GAAS among others. Companies that fail to follow the laid down rules and in turn misquote figures of the financial statements end up being forced to restate the financial statements.

Once such a thing occurs, the reputation of the company is greatly affected as well as all stakeholders. This paper is therefore an in0depth analysis of the possible causes of wrong financial reporting and the impacts it comes with as well as a discussion of the remedies and solutions that can be adopted by the company to overcome the issue.

Accounting Theory

Accounting theory is a broad term that can be simply defined as a set of basic concepts and assumptions and related principles that explain and guide the accountants action in identifying, measuring, and communicating economic information (Young et al, 2007, p. 123).

It therefore guides the accountant in preparing and giving accounting information by providing a logical framework to be used in the accounting practice. His is because it is basically based on the rules, principles and assumptions to be applied in accounting. From the accounting theory, companies become in a position to be consistent and in-line with the stipulated accounting standards.

Based on the accounting theory, companies are therefore placed in a position in which they can chose low cost contracts that minimize the contracting costs. His is referred to as positive accounting theory or rather (PAT). The positive accounting theory assumes that managers will be rational just like investors hence making the securities market to be efficient.

About Nortel Networks Corporation

Nortel Networks Corporation or simply known as Nortel is a leading manufacturer of telecommunications equipment based in Toronto, Canada. With time, Nortel has expanded to reach other parts of the world especially in the United States hence becoming a multinational company. In addition to this, Nortel has its operations divided into four main segments which include;

1. Carrier Networks
2. Global Services
3. Metro Ethernet Solutions
4. Enterprise Solutions

The Unethical Acts of Nortel Company

Most operating organizations have been faced with the problem of making ethical decisions with regard to their operations. This has been caused by the increasing number of stakeholders as well as the huge responsibilities that have been bestowed to the accountants. As a result, there have been many public financial and accounting scandals in the recent past.

Consequently, authorities have therefore been put in place to punish and warn the companies that practice any fraudulent activities. A case in study is that of Nortel Company which in the early 2000s practiced fraudulent activities by not following accounting regulations. The following are some of the companys accusations;

First of all, it was reported that the company executives through fraudulent accounting methods, they gave a false report about the company. Through the use of fraudulent accounting acts, they were able to bridge the gap between the companys real performance and the public expectations as well as its internal goals. As a result, the companys shareholders and investors regardless of their size incurred huge losses after relying on the wrongly published information about the company.

This scandal involved four senior executives of the company who were accused of disregarding accounting standards and requirements of disclosure to provide the wrong picture about the company. One of the executives by the name MR. Dunn, the financial officer was responsible for restating the companys financial results all the way from 2000 to 20003. The company overstated costs in 2001 and 2002 and then understated them in 2003. This was very absurd as the reported information proved to be unreliable.

In addition to the above complains, it was also noted that three of the executives by the name Dunn, Pahapill and Beatty altered Nortels revenue recognition policies to accelerate revenue as needed to meet forecasts and, from at least July 2002 through June 2003, Dunn, Beatty and Gollogly improperly established, maintained and released reserves to meet earnings targets, fabricate profits and pay performance-related bonuses (SEC, 2007, p. 1).

To achieve this wrong information to the public, the executives of the company breached the revenue recognition policies to alter the revenue numbers hence showing wrong figures of reserves and earnings. In the end the figures given had been fabricated to indicate better performances in terms of profits and payouts. By doing this, the executives of the company were violating the accounting theory on earnings management whereby they selected wrong accounting policies so that they could achieve the specific earnings to report.

In this case they applied the bad earnings management instead of the good earnings management. Research has shown that bad earnings management has a negative impact on the financial reporting perspective of a company hence affecting all stakeholders of the company just like the case of Nortel company.

Last but not least are the findings of the auditors where they found out that the companys financial statements had five material deficiencies.

Analysis of the problem

The case of Nortel Company is a perfect example of companies that have breached the laid down accounting standards. As for the case of Nortel, an analysis of the problem shows that the executives violated and ignored the protocols of GAAP that have been established by the United States.

According to the GAAP standards, companies listed in the public exchange are required to follow the stipulated accounting guidelines especially at all times even when publishing accounting information. Nortels executives breached to publish revenue information that met the expectations of the public yet it was not the right data.

Those who relied on the given data especially the shareholders and investors ended up making wrong decisions which in turn led to huge losses incurred. As a matter of fact, the information given only favored the executive members of the company but at the expense of the shareholders and investors.

This can be related to the accounting theory on opportunistic version of Positive Accounting Theory whereby the managers of a company benefit at the expense of the investors. The efficiency version of the positive accounting theory can also be linked to the case of Nortel Company as the mangers chose to apply the accounting policies that would maximize the contract efficiency hence giving the wrong picture about the company.

In a nut shell, the misdeeds of Nortel can be categorized into two groups with the first group being that of revenue recognition issues as from the year 2000. To be specific on this, the company applied the bill and hold transactions in order to increase revenues.

This was contrary to the accounting standards which require that inventory is first delivered to the customer before revenues are recognized. The second misdeed entailed the reserves or liabilities whereby the company reported higher income than it had attained. The executives did this by reducing the current debts instead of recognizing them as expenses. This they did when they desired greater income, for instance more bonuses allocated to them.

Actions Taken

As stated above, the breaching of accounting standards to give false information regarding the company led to huge losses being incurred. Therefore the charges placed against the executive members of the company led to permanent injunction, civil monetary penalties, officer and director bars, and disgorgement with prejudgment interest against all four defendants (SEC, 2007, p. 1).

All the accused executives were heavily fined and forced to pay disgorgement, and interest to the tune of $143,481 to $163,031 each. The punishment given to the executive members of the company with regard to the case served as a warning to other company executives who would indulge into breaching of standards to deceive the public and stakeholders.

Given the false financial statements that the executives published, the company was forced to restate its statements. This is something that landed Nortel in the book of records as it had many restatements within a short period of time when compared to any other public trading company. It was even joked that it changed its financial statements more often than some people would change their hairstyles.

Solutions and Remedies

As stipulated by law, any entity that is publicly owned and operated is required to publish its financial statements at the end of each and very trading period. However, the information to be made public is used by all the companys stakeholders starting from the managers, employees, shareholders, investors and creditors just to mention but a few.

Since wrong information could lead to huge losses and other negative impacts as seen in Nortels case, it is important that the information given gives a true and clear picture of the company. Therefore, in order to protect the public from such cases, the following should be done and implemented

• Publicly listed companies should ensure that they conduct frequent internal as well as external audits. This will ensure that the end result of the financial statements is the right one reflecting the true picture and financial position of the company. This will also ensure that any instances of fraud are detected early enough before they reach the public.
• Secondly, the companies should ensure that the financial officers strictly follow the accounting standards in their operations. This can be initiated by first checking the compliance of the financial officers with the accounting standards as well as their registration and membership with accounting regulation boards.
• The company should also ensure that any personnel that breach the accounting standards and policies are severely punished so as to deter them from repeating the crime while refrain others from committing it.

When the entire above are effectively managed, the public will be protected from fraudulent acts of the company executives hence being able to make correct decisions from the up to date information of the company.

As for the case of Nortel Company, the remedy was to fire the existing executives at the time of the financial scandal. After which, Nortel acquired a new set of executives who revived the company that was slowly going down to closure. Despite the fact that the shareholders confidence had been previously shuttered, the company has fully regained with many shareholders and investors.

Conclusion

From the above discussion on the case study of Nortel Company, the importance of adherence to the accounting standards is clearly seen. Especially for the public entities who are obliged to publish their financial information at the end of each trading period, breach of accounting standards is unethical and illegal hence punishable by law.

This is depicted when the executives of Nortel and especially the financial officer decide to violate the GAAP regulations and publish wrong financial statements to give a false financial position of the company. When the case is taken to the court the executives are severely punished for causing huge losses to the investors and shareholders. This not only serves as a warning to other companies but it also revives the company from the bad public image it had created.

As part of their punishment and follow up, the company is forced to restate its statements several times until the right image is portrayed. All the same, the problem regarding the misdeeds of Nortel Company is not as a result of auditors overlook or wrong report but it is the violation or breach of accounting standards that causes the financial scandals of the Company.

Since that time of the accounting fraud scandal and thereafter the punishment of the accused executives, the company has progressed well with lesser scandals to affect its operations.

It can thus be concluded that the problem of financial scandals in companies concerns the accounting regulation boards and the entire public. This is because if the public ignores the problem of accounting scandals, it will re-motivate some of todays managers to use accounting for their own purposes. It is thus important to keep in mind the schemes and their proper resolutions so as to avoid the loss of billions of dollars in wealth because of the accounting antics of yesteryear(SEC, 2007, p. 1).

Reference List

SEC (2007). SEC charges four former senior executives of Nortel Networks Corporation in wide ranging financial fraud scheme. Web.

Young, N., Warfield, T. Weygandt, J., Wiecek, I, & Kieso, D. (2007). Intermediate accounting (8^th ed.). Ontario, Canada: Wiley & Sons Ltd.

Introduction

Accounting is a vast topic for discussion as it involves numerous smaller ones, all of which are interrelated. Therefore, accounting cannot be researched without understanding its complex structure and its impact on different spheres of public life, interactions with government, and peoples income levels. Consequently, it affects national economies and even the international economy because it influences peoples and governments ability to make purchases, in other words, be economically active.

The topics of the peer-reviewed articles scanned for this essay can be divided into several groups. The reviewed journals included Behavioral Research in Accounting, Journal of Public Budgeting, Accounting and Financial Management, Journal of Cleaner Production, and Accounting, Auditing & Accountability Journal. These journals were rich in articles concerning modern problems of accounting and the prediction of its future. Most reviewed articles were related to environmental accounting issues and business responsibility regarding society. Therefore, sustainability accounting as a uniting topic mentioned above was chosen for this essay. Moreover, the reviewed articles touched on management accounting, performance measurement, ethical conduct in accounting, and corporate governance. Although the topics of articles can be grouped, the conclusions that authors make may differ drastically.

Sustainability accounting can be related to as an obligatory aspect of the modern economy. The fact that tendencies that reflect peoples desire to help each other and maintain comfortable living conditions and social interactions emphasize that society has reached a new step of evolution. This step is characterized by uniting to achieve common goals, being responsible for actions, and implementing new ways of providing conditions for future generations. Being responsive to the challenges of the current turbulent economic, political and social conjuncture predetermines the probability of reaching success nowadays. Therefore, governmental structures and companies have to face the necessity to improve their performance following the new requirements constantly.

History of the Issue

Concerning sustainability accounting, it has not existed for a long time now. This particular dimension of accounting has appeared a few years ago and complies with the modern tendencies to maintaining the responsibility and reliability of all the economic agents. It is necessary to be familiar with the structure of sustainability accounting to understand its purpose and implications in practice. Sustainability accounting includes the issues that the phenomenon of sustainability touches on and interprets them from accounting.

Sustainability concentrates on the effective use of various resources to meet the present needs, considering the future repercussions of present humanitys activities, and ensuring that future generations would be able to meet their needs. Sustainability mainly concerns environmental issues, social equity, and economic development, but there are more detailed aspects (Take action for the sustainable development goals, n. d.). Hence, sustainability accounting includes such gaining popularity issues as environmental accounting, accounting social responsibility of business, and even brand accounting as well as other similar types of it (Take action for the sustainable development goals). The width of the issue can be explained by the variety of social and economic interactions that people and organizations perform daily, along with the complexity of humanitys influence on the environment and different processes. Thus, it is already clear that sustainability accounting and its parts play a crucial role in developing social relations and the economy.

Environmental Accounting

Environmental accounting first became a topic for comprehensive discussion in the 1970s, when the world became concerned about preventing the environment from further damaging. The development of environmental accounting took four stages from the 1970s to the present moment. The present stage of environmental accounting development can be characterized by the high quality of scientific research of the issues related to the topic and the availability of mechanisms to influence economic processes and business behavior. Moreover, the speed of information spreading has grown drastically since the beginning of environmental accountings development, which is why public attention has become a significant triggering force of changes.

Social Responsibility Accounting

The next dimension of sustainability accounting is the social responsibility of business. Social responsibility accounting touches on the interactions and interrelations of society and organizations. Social responsibility accounting was first mentioned in the 1960s and initially spread in the U. S. (Zyznarska-Dworczak, 2020). Social responsibility accounting is aimed at measuring the social benefits that a business initiates and provides. Therefore, with the popularization of the concept of business being a part of the community and therefore having an obligation to respond to its needs, social accounting has gained weight.

The assumptions on which the concept of social responsibility accounting is based are the following. Firstly, the business has obligations to its surrounding community (Karunakaran & Chinnappa, 2021). Thus, it should react timely and relevantly to the events in this community and translate the image of a unit being ready and able to provide help. Moreover, the level of comfort in interactions of the society members with organizations should be maintained on a high level to ensure the trust between business and people.

The second assumption is related to the continuous development of business structures. To be more exact, companies should contribute to their employees understanding of the importance of helping solve problems of the local community despite the possessed resources (Karunakaran & Chinnappa, 2021). In other words, every action, even a minor one, can trigger positive effects, so people should help each other as much as the organizations should help society. Consequently, such an approach allows stimulating the organizations to help the society from the inside  by accepting the suggestions of employees initiatives or creating programs that involve many participants and introducing them to personnel.

Economic Development Accounting

The third aspect of sustainability accounting is the connection to economic development. This mainly refers to the companies and their operation performance but can also be applied to the government. For instance, Karunakaran and Chinnappa (2021) claim that effective accounting controls and accounting practices will tend to have a stimulating effect on the flow of foreign and domestic private capital. Therefore, accounting has a powerful influence on the condition of the economy. Moreover, high-quality accounting is vital to improve transparency as it stimulates the coordination of domestic and international investment which makes it a factor of economic development (Zyznarska-Dworczak, 2020). Hence, accounting, in general, should improve under the modern tendencies to maintain its strong influence over the economy and ensure that it is positive.

Sustainability Accounting as a Whole

Sustainability accounting was first mentioned as a significant way of accountings development in the early 1990s. The concept was discussed and developed; it took much time to evaluate its importance and make predictions for further improvements. World Summit on Sustainable Development that took place in Johannesburg in August 2002, where the Sustainable Accounting Guidelines were presented, marked the beginning of a new era in accounting (). Therefore, the different concepts of accounting and different perceptions of its purpose were gathered together and included in one massive concept of sustainability accounting.

Initially, methods of sustainability accounting were introduced by Gray in 1993. Gray stated that there were three methods of sustainable accounting  sustainable cost accounting, natural capital inventory accounting, and input-output analysis. However, there are two more methods of sustainability accounting nowadays that were introduced later and include full-cost accounting and a triple bottom line method. Therefore, sustainability accounting consists of five methods total, although its meaning is broad.

The importance of the issue is inevitable for several reasons. First, economic development has always been one of the most significant global issues. Second, the connection between business and the community of its employees and consumers is an integral part of social life nowadays. Thus, the clarity and benefit of these relations should be ensured by stating the obligations of the business. Finally, humanity has been trying to deal with ecological problems to save the environment for decades, and the only practically beneficial decision was that the issue could be addressed only if people unite. Therefore, implementing rules for businesses and the government to maintain a particular environmental condition is a solution to massive influence. Generally, sustainability accounting is a complex issue that still has not found a perfect implementation algorithm but is helpful for business, society, and the state.

Literature Review

There is a wide range of studies on accounting in general and its particular aspects or stages of evolution concerning the previous research. Accounting maintains one of the most demanded business-related topics because it improves constantly and never stops to require more changes. Therefore, new features of accounting are considered to have a significant influence on the performance of the companies and the wealth of the state. Sustainability accounting can be analyzed from different perspectives and points of view. Thus, researchers often connect it with some changes in the economy or business sphere to provide a comparative analysis of the conjuncture and assess the changes effect. Furthermore, the existing literature mainly covers the innovations that have touched on the business and the governmental solutions to some problems implemented with the use of accounting. Overall, the number of studies on the topic is vast enough to evaluate the issue from different perspectives.

The most critical issue regarding sustainable accounting is its compliance with modern tendencies. Tiwari and Khan, in their research, reviewed the influence that Industry 4.0 has over the business and its processes (2020). This study also includes assessing Industry 4.0 and the conditions it provides from the perspective of comfort for implementing measures aimed at reaching sustainability goals (Tiwari & Khan, 2020). The form of the research was in-depth group discussions, and two focus groups were analyzed during the study (Tiwari & Khan, 2020). The research has revealed that Industry 4.0 does not provide solutions to all the problems faced on reaching sustainability goals, although its conditions are comfortable for implementing various innovations and introducing changes.

One more study was devoted to sustainability, accounting, and digitalization at the same time. The purpose of the research by Klymenko et al. (2021) was to reveal the ways Norwegian companies comply with the necessity to provide responsible and sustainable accounting. The study has shown that companies adapt differently, but generally, the employees agree with the requirement to have a sustainability policy and are willing to participate in the companys sustainable activities (Klymenko et al., 2021). Digital technologies contribute drastically to the implementation of sustainability principles because they provide an opportunity to optimize the amounts of resources used and allow the workers to avoid dangerous processes (Klymenko et al., 2021). Consequently, technologys role in changing organizations and, mainly, accounting processes is crucial, and they should be used up to the practical limit.

Another research reflecting the topic of sustainability accounting refers to scholars who actively participate in sustainability-related activities towards the issue. Cho et al. (2020) conducted the research using a questionnaire to reveal the professors preferences of the North American community in emphasizing particular aspects of sustainability. The studys main result was insights on the scholars academic life, which is crucial because they are the people who predetermine the view on the sustainability of young people and future generations. Academics highlighted such difficulties they face in their professional life as the lack of recognition by& accounting community, which refers to the articles they publish in peer-reviewed journals (Cho et al., 2020, p. 6). At the same time, the majority of respondents claimed that the most satisfying thing about their job is the ability to contribute to the peer-reviewed development of sustainability accounting and its spreading (Cho et al., 2020). Therefore, there is a controversy between the professors desire to research sustainability accounting and telling about it to their students and the fact that the results of these studies can be left unnoticed.

Another article that is interesting for understanding the topic concerns stakeholder engagement in sustainability accounting. The study by Hörisch et al. (2020) aimed to research the stakeholders involvement in sustainability accounting and reporting. The study reviewed the Stakeholder theory and described the variability of stakeholders impact on the business (Hörisch et al., 2020). Moreover, the study has shown that organizations require the cooperation of their stakeholders to identify the social and environmental issues as they perceive them (Hörisch et al., 2020). Therefore, the role of business stakeholders is crucial for maintaining the relevant responsibility policy and addressing the most urgent issues, which directly affect the reputation of the company.

In addition, there is one more article on stakeholders interests realization through sustainability accounting. The study by Ismayilov et al. (2020) reviewed Ukrainian sustainability reporting assessments and compared them with European and international ones. The study has shown that there should be measures to develop the sustainability accounting evaluation system in Ukraine (Ismayilov et al., 2020). Sustainability reporting was proved to be better due to the amount of experience in European countries compared to international practice.

In general, literature on the topic of sustainability accounting is somewhat variable and covers different aspects of this contemporary issue. However, it does not seem to be enough, as some studies reveal a lack of acceptance of scholarly articles in practice. Therefore, practical issues remain unsolved, and the spreading of sustainability ideas in accounting is slower than it could have been. Thus, the discussions on the topic should be stimulated to maintain a proper level of suggestions for implementation in real life. Moreover, not all the results of the reviewed articles have the potential to be introduced globally, although sustainability is the goal of the whole world, as the United Nations have stated. As a result, for making the result visible, more attention should be paid to accounting issues and sustainability accounting in particular because it affects the economy and social sphere and can improve them considerably.

Critical Analysis

Although the issue seems to affect all the economic agents first, real stakeholders can be distinguished from the variety of subjects related to sustainability accounting. Logically, the main stakeholders, in this case, are the society where the business exists (in other words, community or consumers), employees of the companies, governmental structures, and auditors. There is an explanation of why each of the mentioned above agents is a stakeholder of sustainability accounting and why maintaining sustainability is essential and beneficial.

Stakeholders: Society

First of all, the main stakeholder who is affected by the sustainability accounting implementation is society. It cannot be denied that the necessity to provide society with comfortable conditions is positive, and helping people is natural for huge companies has been discussed for decades. However, now is the moment when people face the changes that would lead to particular consequences, and the same decision would trace many more repercussions than it is possible to imagine. Although the problem exists and most interested parties are aware of it, we still have not reached the perfect state of society regarding sustainability. Changes are coming too slow in spite of the existing data, research results, and prediction. Therefore, it may still be unnatural for the community members in different countries worldwide to feel the support of the business.

Society and its members need help more frequently than it is commonly assumed by businesses. Sustainability responds to the challenges that the continuously changing conditions of the worlds economy trigger. The dimensions of sustainability allow covering vital spheres of peoples lives because the economy and social interactions combined create the system of interrelations that involve all that is needed for living. Zyznarska-Dworczak (2020) emphasizes that society has a particular perception of business financial activity and consequent sustainable accountability, which makes it a critical success factor. On the other hand, the lack of conforming with the image that society members bear in mind can lead to negative repercussions.

Stakeholders: Auditors

One more stakeholder of sustainability accounting is the group of people who assess companies compliance to specific rules  auditors. According to Silvola and Vinnari (2020), auditors attempt to promote sustainability assurance and establish it as a practice (p. 1). Considering the primary purpose of this profession, assessing companies and their accounts on suitability and fairness of their performance, there is no doubt that these people are interested in spreading sustainability. As the laws are constantly improving to reflect the global goal of sustainability more thoroughly and ensure its achievability, auditors face more and more inconsistencies of reality with the desired image. The inner audit could prevent the negative consequences of these fast changes by revealing the small changes that should be done to improve the situation. This solution would allow companies to stay in the market without the necessity to close because of audits conducted by third parties.

In addition, auditors are interested in the successful implementation of sustainability accounting to as many businesses as possible because it is an indicator of auditors effectivity. In other words, the more companies auditors can refer to as reliable and trustworthy, the better they perform their duties, and the better their impact on the economy is. Thus, although auditors and their professional activity is not fully determined by the sustainability accounting in business, they are still the stakeholders of this modern trend.

Stakeholders: Government

Moreover, sustainability accounting affects the government and its structures, but in a way that is not that evident. To be more exact, sustainability accounting contributes to reaching a global goal, which is shared by the countries included in the United Nations (Take action for the sustainable development goals). Global aims require thorough research on decisions which should be implemented because the conditions may vary depending on the region of the world and the country (Take action for the sustainable development goals). Furthermore, the potential of each countrys economy differs depending on various reasons, which leads to different capacities regarding introducing and implementing new measures.

However, all participants must comply with international contracts; otherwise, sanctions may be used on those countries that do not take steps towards a better future. That is why governments are stakeholders of sustainability accounting, which provides the state with information on business performance and serves as an instrument of control. Introducing the strategies for development by the sustainability principles, the governments of different countries state that particular goals have to be achieved in the set periods. In some countries, the process of controlling the implementation of new measures may be complexified by huge territory or sophisticated managing schemes. Thus, partly sharing the responsibility with business solves the problem because sustainability can only be achieved with a complex approach.

Stakeholders: Employees

The final group of most evident stakeholders of sustainability accounting can be referred to as employees of the companies which implement sustainability policies. These people can also be included in the group named local community because practically, they are a part of it, not less than the consumers. However, it is rational to distinguish these two groups and discuss the effects both experience due to the implementation of sustainable accounting. Ozili (2021) suggests that an organization should reveal as much information on its operational performance as possible since employees may want to know something concerning the topic, and it should not remain a secret to them. Regarding the employees, they may be significantly affected by the companys attitude to sustainability due to several reasons.

Firstly, their personal opinion on the necessity of introducing sustainability principles into every aspect of public life may differ from the opinion of the companys management, claiming that it is not that essential on a micro-level. Thus, it might be more difficult for such a person to find a suitable workplace due to many companies not following the main path. Accordingly, such discrepancy may result in the worsening of the situation concerning the number of companies following the principles of sustainability accounting. At the same time, businesses would miss the opportunity to become more society-oriented, which would most probably lead to a loss of clients in the long run.

Secondly, sustainability may be included in a companys corporate culture  personally, I believe it should be because the effectiveness grows  and the employees would get access to making steps towards sustainability themselves. In this case, the mentioned measure would be effective if the companys personnel share its values and the global values and want to get more opportunities for contributing to reaching the global goal. Corporate culture usually has a powerful influence over the employees, so introducing even the most minor opportunities to increase the level of sustainability would be a tremendous stimulating measure for the workers. As a result, the company would employ staff who perceive sustainability as their personal goal and then reaching common purposes would take less time and effort.

Thirdly, employees of any company are primarily people with their own needs, desires and problems. Moreover, they are a part of the community whose members the business interacts with and whose opinions the further destiny of it depends. Therefore, it is essential to provide them with suitable conditions and show that constant changes for the better are one of the directions of the companys strategic plan. Compliance with the sustainability accounting principles may show the employee that the company is reliable and responsible, which is a sign that it may provide a suitable workplace.

Furthermore, such an approach to assessing business intentions by its conformity with the global principles of sustainability can be used by other economic agents. For example, the government may evaluate a companys plans by checking its completion of the sustainability goals and choose the one for state procurement based on this evaluation. In addition, other companies looking for partners to compete with aggressive marketeers or stay alive during a crisis may use the same indicator as a critical factor of the potential partners trustworthiness. In other words, the management of the business may be strongly affected by sustainability accounting because its income level would most certainly depend on the level of a companys compliance with sustainable principles.

The regulations of sustainable accounting play a critical role in its implementation, and thus, the effects on the stakeholders depend on it. The stricter are the regulations of introducing changes in the company, the longer the implementation would last. Therefore, organizations should shift to more agile structures and alter their approach to changes if it is still negative. This would provide the required space and opportunities for the new stage of an organizations evolution. At the moment, most companies are not ready for the implementation of sustainability principles.

Conclusion

To conclude, sustainable accounting is an essential step in the evolution of accounting. Sustainability as a global trend supported by the United Nations has spread widely, and now it is included in almost every comprehensive business policy  not mentioning the governmental programs. Sustainable accounting has a range of instruments, which allow assessing the level of sustainability, although they are not perfect and require timely improvements. Due to the phenomenons complexity and the interrelation of all spheres of life, which strengthens each year, accounting sustainability affects public life in general on both micro and macro levels. Therefore, as a crucial part of the companies performance and, therefore, the economy in general, sustainable accounting should be maintained and developed constantly because it triggers significant social, environmental, and economic changes.

Finally, the number of stakeholders groups of the sustainability accounting is huge and proves the significance of the issue. Implementing sustainability in the business processes of a company would most certainly affect its top management, employees, customers, and potential partners. In addition to this, the relations of the company with the state can be strongly influenced by its accordance with the sustainability rules. Therefore, as sustainability is considered to be a global goal, the measures should be undertaken on every level of economic interactions. As a consequence, the probability of reaching sustainable purposes would increase due to the growth of the number of supporting participants.

References

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Silvola, H. & Vinnari, E. (2020). The limits of institutional work: a field study on auditors efforts to promote sustainability assurance in a trust society. Accounting, Auditing & Accountability Journal, ahead-of-print(ahead-of-print), 1-30. Web.

Take action for the sustainable development goals. (n.d.). United Nations. Web.

Tiwari, K. & Khan, M. S. (2020). Sustainability accounting and reporting in the Industry 4.0. Journal of Cleaner Production, 120783, 114. Web.

Zyznarska-Dworczak, B. (2020). Sustainability accountingCognitive and conceptual approach. Sustainability, 2020, 1-24. Web.