Module 5 Corporate Accounting Presentation PDF

MODULE 5 CORPORATE ACCOUNTING  CORPORATE REPORTING OBJECTIVES Decision Making: Investors and creditors rely on accurate financial reports to make informed decisions about investing in or lending to a company. Compliance: Proper financial reporting ensures compliance with regulatory requirem...

MODULE 5 CORPORATE ACCOUNTING  CORPORATE REPORTING OBJECTIVES Decision Making: Investors and creditors rely on accurate financial reports to make informed decisions about investing in or lending to a company. Compliance: Proper financial reporting ensures compliance with regulatory requirements and accounting standards, which is essential for maintaining the company’s legal standing and avoiding penalties. Transparency: Clear and accurate financial reports enhance transparency, fostering trust and confidence among stakeholders. Performance Evaluation: These reports enable management to evaluate the company’s performance, identify areas for improvement, and develop strategies for growth. Risk Management: Accurate financial reporting helps in identifying potential financial risks and implementing measures to mitigate them.  USERS OF ACCOUNTING INFORMATION 1. Internal Users They are involved in the day-to-day operations of the business as well as long-term strategic planning. These professionals help in making decisions related to purchasing inventory, managing supply, and deciding prices. These are the primary users of accounting that are further subcategorized into three types. 1.1 Owners These accounting information users use this information to assess how their business is going and what is the level of risk involved in it. They use accounting information to determine the level of stability in the business over years and the impact of economic factors on business. Financial statements help them in understanding the profitability of the overall business and products. By wisely using this information, they can decide whether they should invest in a business or if they should use resources in other areas. 1.2 Employees They use financial information to prepare and review financial reports such as the financial statements. They also need to review the accounting information in the annual report to gain a better understanding of the business. Using accounting information, they can also assess how their company is performing. 1.3 Managers Managers plan, monitor and make decisions that are relevant for the business. They allocate resources to appropriate business activity to provide for the needs of business. These users of accounting information monitor the performance of business by comparing against past informations, KPI, industry benchmark and competitor analysis. These professionals use information of accounting to make decisions related to financing, investing and pricing.  2. External users They have varying interests for which they are categorised as users of accounting information. There are different external accounting information users. Let us discuss these users. 2.1 Tax authorities These bodies use business information to determine whether the amount of tax declared by the business in its tax returns is correct. They also use this information to determine the tax liabilities of an enterprise. To verify the information filed on tax returns, these authorities audit returns, accounting records of customers and suppliers to prevent tax evasion. 2.2 Government The apex governing body is one of the main users of accounting information. The use of this information is based on the regulations that are meant to protect the interest of stakeholders who use this information to make decisions. They can use this information to monitor the economy. Using this information also helps them in monitoring and setting accounting thresholds to determine the business size. This helps the government ensure whether the business is complying with relevant regulations or not. 2.3 Creditors Also known as lenders, these people use accounting information to decide whether they should offer credit to the company. They also decide if there is any need to restrict credit flow to the company based on the assessment of accounting information. Through this information, they can assess whether the company is capable of repaying them. If the company has been able to pay off its liabilities on time, then it indicates the good financial health of the company, its securable assets and high profitability. In case, the company lacks assets, has poor liquidity and is unable to pay liabilities on time; it indicates that the company’s financial health is not good enough. 2.4 Suppliers These people use accounting information to determine the credit-worthiness of the customers. Based on this assessment, they decide whether they should offer goods and services on credit to its customers. These users of accounting information indirectly assess the financial health of the business based on its customers. 2.4 Auditors These finance professionals audit the financial statements and accounting records. Their assessment of the accounting information is used by third parties and investors who need to know the actual financial status of the company. Since auditors provide an unbiased opinion through their reports, their reports are mostly accurate. DIRECTORS REPORT The Director’s Report is a crucial document that must be attached to the financial statements sent to shareholders. Under the Companies Act, 2013, the report must be based on standalone financial statements and signed by the Chairperson or, if not authorized, by at least two directors, one being a Managing Director. It includes mandatory disclosures such as the number of board meetings held, director responsibility statements, fraud details, and explanations for auditor qualifications. The report must cover financial highlights, material post-balance sheet events, changes in director appointments, and compliance with various statutory requirements, including related party transactions and internal financial controls. Additionally, it must address company performance, risk management policies, and any significant orders affecting the company’s status. For every company, including OPCs and small companies, the report requires details on web links for annual returns, auditor appointments, and disclosures under relevant acts such as the Sexual Harassment of Women at Workplace Act. Event-based disclosures include details on CSR initiatives. The comprehensive nature of these disclosures ensures transparency and accountability in financial and operational reporting. CORPORATE SOCIAL RESPONSIBILITY Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship, companies are aware of how they impact aspects of society, including economic, social, and environmental. Engaging in CSR means a company operates in ways that enhance society and the environment instead of contributing negatively to them.  Types of CSR Environmental responsibility: Corporate social responsibility is rooted in preserving the environment. A company can pursue environmental stewardship by reducing pollution and emissions in manufacturing, recycling materials, replenishing natural resources like trees, or creating product lines consistent with CSR. Ethical responsibility: Corporate social responsibility includes acting fairly and ethically. Instances of ethical responsibility include fair treatment of all customers regardless of age, race, culture, or sexual orientation, favorable pay and benefits for employees, vendor use across demographics, full disclosures, and transparency for investors. Philanthropic responsibility: CSR requires a company to contribute to society, whether a company donates profit to charities, enters into transactions only with suppliers or vendors that align with the company philanthropically, supports employee philanthropic endeavors, or sponsors fundraising events. Financial responsibility: A company might make plans to be more environmentally, ethically, and philanthropically focused, however, it must back these plans through financial investments in programs, donations, or product research including research and development for products that encourage sustainability, creating a diverse workforce, or implementing DEI, social awareness, or environmental initiatives. AUDIT REPORT An audit report summarizes an organization’s financial statements, internal controls, and accounting practices to determine if the financials are accurate, complete, and in accordance with generally accepted accounting principles (GAAP) or other relevant accounting standards. The Financial Accounting Standing Board sets these principles with the goal of providing clear rules for the auditing process so auditors can maintain an objective viewpoint when making their judgments. Audit reports are conducted either by an in-house audit committee as part of their internal control methods or by an external auditor. An organization’s executive board can use audit reports to identify areas of improvement or to gain clarity on what they require from prospective investors.  COMPONENTS OF AN AUDIT REPORT Each auditor can alter the structure of their audit reports to suit their needs and preferences, but they often use a similar template. They begin with a heading that displays the date, name of the auditor, the company, and their address. The body of the audit report usually includes these segments: Auditor’s responsibility: Auditors are legally required to state their responsibility in auditing the organization’s financial status. They must explain how they’ll provide unbiased results that are not influenced by any personal interests. Auditor’s opinion: The auditor gives an overview of the company’s finances and defines their report as clean, qualified, disclaimer, or adverse opinion. They will list some of the basic details regarding the process, such as the company’s name, auditing time span, financial records used in the review, and a statement on the company’s adherence to GAAP guidelines. Basis for opinion: This is where the auditor will provide the reasoning for their opinion. They will explain the different assessments used in the review process, compliance with GAAP regulations, and test results. Other reporting responsibility: Auditors can use this section to point out specific irregularities found in financial reports or recommend follow-up actions that may lead to better assessments going forward. This part is not mandatory and is especially unnecessary for clean reports. Signatures: The official signature of the auditor verifies the audit report as an authentic document. This section also includes the city where the auditing took place and the signing date.  Types of Audit Reports 1. Clean Report or Unqualified Opinion A clean report means the auditor found nothing wrong with the organization’s financial reports and the company is fully compliant with GAAP rules. It’s also known as an unqualified audit opinion because the company in question doesn’t have to make any adjustments to improve its financial state. 2. Qualified Report or Qualified Opinion An auditor gives a qualified opinion if an organization’s financial reporting doesn’t comply with GAAP guidelines. This opinion can hamper attempts to bring in additional investors. The auditor will also explain where the company must improve in order to raise its financial status. 3. Disclaimer Report or Disclaimer of Opinion A fundamental requirement of the auditing process is that organizations must provide auditors with full access to their financial records without impediment or restraint. If the auditor feels their access was limited or the company failed to answer questions during the audit, the auditor may write a disclaimer report. Also known as a disclaimer of opinion, it means the auditor cannot issue a definitive opinion due to issues encountered during the process. This can help preserve the reputation of an auditor in the event of legal troubles. 4. Adverse Audit Report or Adverse Opinion In an adverse opinion or audit report, the organization is found to be noncompliant with GAAP reporting guidelines or their financial statements clearly misrepresent their assets and liabilities. These reports are written when auditors find examples of financial misappropriation or irregularities. Adverse audit reports make investors and other stakeholders aware of potential fraud. While no organization  RECENT TRENDS IN PUBLISHED ACCOUNTING 1. Technology and Automation Ever-evolving technology and a trend toward automation of repetitive accounting tasks are some of the most exciting developments in the accounting industry. Some of the processes that are being automated include approval workflows, bank reconciliation, journal entries, inter-company consolidation, revenue recognition, lease accounting and depreciation. While there are many accounting functions that can be automated, there is a lack of understanding of the technologies and a lack of resources to implement them. But those that take the leap are reaping the benefits. Some 70% of companies(opens in a new tab) that have automated more than one-fourth of their accounting functions report moderate or substantial ROI. 2. Role of Artificial Intelligence (AI) Across industries there’s consensus that AI can and will have a significant impact on finance and accounting. Companies are using AI and robotic process automation (RPA) to automate mundane, highly repeatable tasks, allowing accountants to focus their time on higher impact and higher value activities. Accounting Firm EY, for example, has applied AI to the analysis of lease contracts to make it easier to capture information quickly on commencement date, amount to be paid, termination or renewal options and allow the finance professional to spend more time on making decisions with the data instead of looking for it. 3. Accounting Software For RPA to be successful, transactional data needs to be standardized and merged from multiple sources in multiple formats, also known as harmonizing. Harmonization can involve bringing together structured, semi-structured and unstructured data within a single system. AI needs vast amounts of data to be effective. And above all, the outputs of all enabling technologies need to be trusted by the accountants. That’s where accounting software comes in. Some 36% of companies plan to implement cloud-based accounting solutions in the near future. Enterprise resource planning systems can integrate your accounting software and your financial data with other important areas of your business, such as supply chain, order and production management. An integrated ERP platform consolidates data from these different areas to give you more actionable insight into your business. 4. Data Analytics and Forecasting Tools Among the accounting tips for both small businesses and larger companies, increasing the use of budgeting, forecasting and planning software, as well as data analytics and visualization tools is one of the most impactful. Finance functions are becoming significantly more analytical – and technology will help push the accounting and finance department from reactionary and transactional to proactive and analytical. As evidence of the demand for the increasingly analytical and tech-savvy accountant, IMA recently launched it’s a Data Analytics & Visualization Fundamentals Certificate. The program is designed to equip accounting and finance professionals with the strong critical thinking, problem-solving and technology skills needed to advance business strategy. 5. Digital Transformation Faster than perhaps ever before, organizations are transforming how they do business with the aid of digital technology — and accounting and finance teams have been at the heart of it all. They’ve put processes in place to account for new revenue from subscription models, new channels, new physical and digital product offerings and more. One of the most pressing accounting challenges is leveraging technology to support the business strategy and adapt to changing conditions. 6. Online Collaboration and Remote Workforce Especially useful with the trend of remote working, cloud-based software allows teams that are physically dispersed to collaborate and accomplish critical financial processes, such as month-end close from anywhere with a computer and an internet connection. Accounting will need collaboration tools, such as Zoom, fort and functional collaboration tools for e-signature and cloud-based file sharing. 7. Evolution of the Accountant Role In the future for accounting, more transactional work will become automated, and accountants will increasingly be seen as leaders and decision makers. More and more, accountants must rely on the so-called soft skills, leadership and other traits associated with emotional intelligence. These skills, paired with training to leverage insight from data analysis and the financial expertise, are what will make for successful careers in the future. 8. Data Security Data breaches are a bigger risk than ever, and finance departments are one of the leading targets. The breaches can lead to identity theft, or the stealing of personal data and credit card information, and spoofing, which is when an email is disguised to appear to come from a known and trustworthy source. Training in recognizing potentially harmful emails and spotting attacks will continue to be crucial for accounting teams, who are already skilled in looking at the details and spotting anomalies. The accounting team can share the importance and become champions of cybersecurity for your organization. 10. Statutory and Regulatory Compliance Aside from taxes, accounting and finance teams need to be mindful of shifting statutory and regulatory changes. Monitor and account for regulations, including COVID stimulus legislation. Changes in leadership at the SEC are likely to impact financial reporting requirements and scrutiny. 11. Environmental, Social and Corporate Governance (ESG) ESG will be in sharp focus for companies, and it’s widely expected there will be new federal regulations pertaining to the areas within it – especially as it relates to financial disclosures for public companies. These disclosures are likely to include mandated disclosure of climate- related financial risks and greenhouse-gas emissions in your operations, as well as your supply chains. Additionally, major investors are calling for increased diversity, which affects all areas of your business, including finance and accounting. Professional trade organizations are aiming to help accountants prepare. 12. Accounting Standards Throughout the year, the Financial Accounting Standards Board (FASB) issues accounting standards updates about changes that could affect financial statements and how to keep them GAAP compliant. For 2021, there are changes related to asset acquisitions, credit losses, debt securities, leases, reorganizations, variable interest entities, and banking regulation disclosures. 13. Outsourcing Organizations of all sizes may find some benefit in outsourcing some or all of their finance and accounting functions. Smaller companies outsource accounting to avoid hiring additional headcount. Larger firms may outsource some or all of their accounts payable, this is generally done to save money. Additionally, outsourcing can sometimes give you access to skillsets, technology and expertise your company would not easily or affordably replicate by hiring new headcount and investing in your own infrastructure. International Financial Reporting Standards (IFRS) International Financial Reporting Standards (IFRS) were created to bring consistency and integrity to accounting standards and practices, regardless of the company or the country. They were issued by the London-based Accounting Standards Board (IASB) and address record keeping, account reporting, and other aspects of financial reporting. The IFRS system replaced the International Accounting Standards (IAS) in 2001. IFRS fosters greater corporate transparency. IFRS are not used by all countries; for example, the U.S. uses generally accepted accounting principles (GAAP).  the international accounting standards are a set of practices established by the International Accounting Standards Board (IASB). These practices are designed to make it simpler for businesses around the world to compare financial reporting and data. This also helps create transparency and trust in the accounting process, particularly with investment and global trade. Having an international accounting standard also alleviates compliance pressures and can significantly reduce costs surrounding reporting. In particular, companies that have international operations and subsidiaries in different countries can streamline reporting and practices. It is important to know though, that IAS has been replaced by the newer International Financial Reporting Standards (IFRS). Indian Accounting Standards (IND AS) Objectives of Accounting Standards (IND AS) The Indian Accounting Standards (IND AS) primary objective is to ensure that large-scale activities are properly accounted for through continuous disclosure, treatment, and reformation. IND AS standardizing accounting policies and principles for the country’s economy. Provides a unified framework for the preparation of books of accounts and ensures financial transparency. The Indian Accounting Standards (IND AS) ensure that all institutions and governmental bodies are accepted globally.