Purpose and Use of Different Accounting Records

Purpose and Use of polar invoice RecordsAccounting record is define as the whole of the documentations involved in the preparation of pecuniary statements and records which argon relevant to m championtary re side and scrutinises which include recording of as localises and liabilities, ledgers, journals, and any opposite supporting documents the likes of invoices.Ledger Maintaining ledger is a must in wholly news notify carcass. Ledger is devoted for preparing ravel balance which checks the arithmetical truth of the report books. Ledger is the store-house of all kind of information which is used for preparing lowest numbers and fiscal statements.Prime portal books The other whiz is prime entry books which are to a fault enjoy as books of original entry are books where proceedings are first recorded. The main(prenominal) books of prime entry consists of gross revenue twenty-four hours book, purchase day book, sales return day book, purchase return day book , general journal and cash book (Ducha, et.al, 2008).Accounting plays important and utilizable role by evolution the information for providing answers to many questions faced by the users of news report information. It earmarks information how good or bad the pecuniary condition of the crinkle is, which activities or products have been profitable. Accounting is important for a business entity for the following reasons Accounting record, set on the base of even practices, will assist a business to compare results of one period with a nonher period.Insulating records, backed up by proper and genuine vouchers are good indorse in a court of right.Increased volume of business results in large number of transactions and no businessman evict remember everything. Accounting records avoid the necessity of remembering divers(a) transactions. profound concepts of write upAccruals concept of accounting Other than the cash flow statement, the accounts have been set on an accruals inf rastructure. The accruals radical of accounting involves the non-cash of transactions to be mirrored in the fiscal statements for the period in which those effects are experienced and not in the period in which cash is actually received or nonrecreational (Open University Course Team, 2006).Going concern The accounts have been nimble on a going concern solid ground which closes that the accounts have been inclined(p) on a going concern basis. It further clears that the accounts have been prepared on the assumption that the authority will continue to operate for the foreseeable future. The Avenue account and equipoise Sheet assume no intention to really curtail the city Councils trading operations (Open University Course Team, 2006). congruity concept on that point are a number of discordent ways in which both(prenominal) concepts can be applied. for each one business must choose the approach that gives the most reliable picture of the business, not just for this period, but over time also. According to the consistency convention, when a order has been adopted for the accounting treatments of an item, the same method will be adopted for all subsequent occurrences of similar items. However, it does not mean that the firm has to follow the method until the firm closes down. (Open University Course Team,2006).Prudence Concepts The account should be prudent when preparing monetary statements. In other words, if something is in doubt, device for the worst and, if a transaction has not yet been formal ignore ant possible benefits that may arise from it (Open University Course Team, 2006).Business entity concept It is one of the main accounting principles of accounting this concept says that Business should be treated respectively from the property owner or investor In simple words we can say owner of the business should be treated separately from the business whatever profits come in to the business should be aspiren in follow account. Under the business entity concept, the activities of a business are recorded separately from the activities of its owners, creditors, or other businesses (Ducha, et.al, 2008). divers(prenominal) factors of accounting systemComputerised accounting system Keeping accurate accounting records is a vital ingredient of managing an organisation. Apart from helping to keep it afloat financially and legally, it is also a requirement of funding bodies. littler groups can usually manage with simple book-keeping procedures but bigger groups juggling with larger sums of money and more(prenominal) complex financial transactions may find their workload eased by using a computerised accounting system. The good news is that in that location are easy to use and reasonably priced computerised accounting packages on the market that are either aimed at, or can be adapted to, voluntary sector organisations (Ducha, et.al, 2008).manual of arms Accounting Systems Accounting systems are manual or comprised. Underst anding a manual accounting system is useful in come come forwarding relationships amid accounting data and reports. Also, most computerised systems use principles from manual systems. In other words, Manual accounting and bookkeeping systems are the traditional form of maintaining a businesses accounts and records. They involve keeping various ledgers and files which typically include a cash book, sales and purchase day books and petty cash sheets. Although the use of basic manual bookkeeping systems requires little knowledge or skill in accounting, they are assuage the preferred method of accounting for those who have used them in the past (Drew, et.al, 2000).Considering factors when using computerised and manual accounting systemThe capacity to generate sales /increase invoices the necessity to compute/include VAT in accounting cost how much can a firm truthfully afford on software, updates and support, the cogency to fulfil payroll, and stock control are the considering fac tors of computerised accounting system.Task 2Meaning of business jeopardy Business insecurity is associated with the uncertainty of a companys future cash flows, which are discover by the operations of the company and the environment in which it operates. It is the variation in cash flow from one period to another(prenominal) that causes greater uncertainty and leads to the need for greater compensation for investors. For example, companies that have a long history of enduring cash flow require less compensation for business find than companies whose cash flows metamorphose from one quarter to the next, such as technology companies (Fabozzi, et.al, 2007).Components of business gamblesOperational guesss The risk of qualifying resulting from insufficient inside processes, people and systems, or from external events which includes legal risk. In other words, the risk of divergence resulting from failure to agree with laws as hale as prudent ethical standards and contractu al obligations which includes the exposure to litigation from all aspects of an Institutions activities. The translation does not focus strategic or reputational risks. In other words, practicable risks are concerned to raise operational risk assessment efforts by encouraging the industry to develop methodologies and collect data cogitate to managing operational risk. Strategic and reputational risk is not included in this definition for the office of a negligible regulatory operational risk great(p) charge which focuses on the causes of operational risk and the Committee believes that this is give up for both risk centering and, ultimately, measurement (Fabozzi, et.al, 200).Compliance jeopardys Compliance risk can be defined as the current and potency risk to earnings or money arising from violations of, or non-conformance with, laws, rules, approved practices, intimate policies, and methods, or moral standards which arises in situations where the laws or rules prevaili ng certain bank products or activities of the Banks nodes may be unclear or unverified. This risk exposes the institution to fines, civil money punishments, payment of damages, and the voiding of contracts (Fabozzi, et.al, 200). liquid state risks Liquidity risk can be explained as the current and approaching risk to earnings or capital arising from a banks incapability to meet its obligations when they come due without incurring unacceptable losses. Liquidity risk includes the softness to manage un projectned decreases or changes in funding sources. Liquidity risk also arises from the failure to recognise or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value (Neu, and Malz, 2007).Meaning of risk management The true connotation of managing the risks is combined with the activities of human wherein the appellative of the risk, risk evaluation, adapting techniques to manage it and lessening of risks by using mana gerial strategies is done. The various ways in creating risk management includes moving the possible risk to other group, preventing the risk from happening, lessening the risks negative effects and recognizing all the consequences that a specific risk might bring (Blokdijk, 2007) incorporate politicsAccording to Cadbury Report, Corporate brass section is the system by which companies are directed and controlled where the role of the shareholders is to appoint the directors and the external attenders, and to satisfy themselves that an appropriate governance structure is in place where directors are responsible for setting the companys strategic aims, providing the leadership to put these into effect, administrate the management of the business and reporting to shareholders on their stewardship. Corporate governance involves a set of relationships between a companys management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure thr ough which the objectives of the company are set, and the means of attaining those objectives and supervise performance are unconquerable. (Gupta, 2005)Cadbury codeThe Cadbury Report, formally entitled The Report of the Committee on the Financial Aspects of Corporate Governance was published in December 1992, following the recommendations of the Cadbury Committee. The establishment of the Committee in May 1991 by the Financial Reporting Council, the London Stock Exchange, and the accountancy profession arose in response to the occurrence of financial scandals in the 1980s involving UK listed Companies, which had led to a fall in investor confidence in the quality of companys financial reporting (Cadbury, 1992).Fraud Risk AssessmentTo be protective of itself and its stakeholders efficiently and legally from travesty, an governing should experience fraud risk and the specific risks that directly or indirectly relate to the organization. A structured fraud risk assessment, tailor ed to the organizations size, complexity, industry, and goals, should be performed and updated periodically. The assessment may be integrated with an overall organizational risk assessment or performed as a stand-alone exercise, but should, at a minimum, include risk appellation, risk likelihood and importation assessment, and risk response (ww.acfe.com/documents/managing-business-risk).Managing the risk of fraud, the risk based approachA risk-based approach enables organisations to target their resources, both for improving controls and for pro-active detection, at problem areas. Developments in corporate governance, including the requirement for statements on familiar control, create the atmosphere in which fraud can be considered as a set of risks to be managed alongside other business risks. Managing the risk of fraud should be embedded in the integrality of an organisations risk, control and governance procedures. In wider sense, assessing and managing the risk of fraud invo lves assessing the organisations overall exposure to fraud, recognising the areas most vulnerable to the risk of fraud, assigning ownership, calculating the scale of fraud risk, responding to the risk of fraud and determining the success of the fraud-risk strategy (ww.acfe.com/documents/managing-business-risk).Assessing the Organisations overall Vulnerability to Fraud Vulnerability to fraud can be assessed at different levels in an organization where a quick assessment of the overall level of risk an organisation is exposed to is often a good starting point and may highlight particular vulnerabilities where some action needs to be taken immediately rather than wait for the results of a more in-depth risk assessment to be completed. A fraud risk assessment should additionally be carried out during the development of any new policies, activities or operations to ascertain whether any new risks arise that need to be managed. The risk assessment should also be re dateed and re-assessed whenever a change in policy occurs or when changes are made to the way in which a policy is to be implemented (ww.acfe.com/documents/managing-business-risk).Fraud risk identification may include aggregation external information from regulatory bodies, industry sources, key guidance setting groups), and professional organizations, the American establish of Certified Public Accountants (AICPA), the Association of Certified Fraud Examiners (ACFE), the Canadian Institute of Chartered Accountants (CICA), The CICA Alliance for integrity in Investigative and Forensic Accounting. upcountry sources for identifying fraud risks should include interviews and brainstorming with personnel representing a giving spectrum of activities within the organization, review of whistleblower complaints, and analytic procedures. A proper and working fraud risk identification process includes an calculation of the incentives, pressures, and chances to commit fraud. Employee incentive programs and the m etrics on which they are based can provide a map to where fraud is most likely to occur. Fraud risk assessment should consider the potential override of controls by management as well as areas where controls are weak or there is a lack of segregation of duties (Vallabhaneni, 2008).The speed, functionality, and accessibility that created the enormous benefits of the information age have also increase an organizations exposure to fraud. Therefore, any fraud risk assessment should consider access and override of system controls as well as internal and external threats to data integrity, system security, and theft of financial and sensitive business information (Costa Lewis, 2004).Assessing the likelihood and significance of each potential fraud risk is a subjective process that should consider not only monetary significance, but also significance to an organizations financial reporting, operations, and reputation, as well as legal and regulatory compliance requirements. An initial ass essment of fraud risk should consider the intact risk8 of a particular fraud in the absence of any known controls that may address the risk.Risk assessmentThe control environment crack activitiesInformation and communicationMonitoring (Costa Lewis, 2004).THE COSO MODEL In the united States many firms have adopted the internal control concepts existing in the report of the Committee of Sponsoring Organizations of the mistreat way Commission (COSO). Published in 1992, the COSO report describes internal control as A process, affected by an entitys board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categorieseffectiveness and efficiency of operations,reliability of financial reporting, andCompliance with applicable laws and regulations.COSO describes internal control as consisting of five essential components. These components, which are subdivided into seventeen factors, includeThe cont rol environmentRisk assessmentControl activitiesInformation and communicationMonitoring (Vallabhaneni, 2008).Duties and responsibilities of attendantIn most countries the analyseor has a statutory province to make a report to the entitys members on the truth and wanness of the entitys annual accounts. As we have seen in the foregoing section, this report must state the analyseors opinion on whether the statements have been prepared in conformance with the relevant legislation and whether they give a true and fair view of the profit or loss for the year and state of affairs at the year end. The duty to report on the truth and fairness of the financial statements is the primary duty associated with the external audit.The tender has a duty to form an opinion on certain other matters and to report any reservations. The auditor must consider whether1. The entity has kept proper accounting records2. The entitys balance sheet and income statement agree with the lowlying accounting records3. All the information and explanations that the auditor considers indispensable for the purposes of the audit have been obtained and whether adequate returns for their audit have been received from branches not visited during the audit4. The entity has complied with the relevant legislations requirements in respect of the requirement disclosures. If the entity has not made all the disclosures required the audit report should, if possible, contract a statement of the required particulars (Vallabhaneni, 2008).Relationship between internal and external auditThe coordination of internal audit natural process with external audit occupation is very important from both points of view from external audits point of view is important because, in this way, external auditors have the possibility to raise the efficiency of financial statements audit the relevance from internal audits point of view is assured by the fact that this coordination assures for the internal audit a summa tion of essential information in the assessment of risks controlThe role of internal auditing is determined by management, and its objectives differ from those of the external auditor who is appointed to report independently on the financial statements. The internal audit functions objectives vary according to managements requirements. The external auditors primary concern is whether the financial statements are free of material misstatements the external auditor should obtain a sufficient understanding of internal audit activities to identify and assess the risks of material misstatement of the financial statements and to design and perform further audit procedures. The external auditor should perform an assessment of the internal audit function, when internal auditing is relevant to the external auditors risk assessments. Liaison with internal auditing is more effective when meetings are held at appropriate intervals during the period. The external auditor would need to be advised of and have access to relevant internal auditing reports and be kept informed of any significant matter that comes to the internal auditors attention which may affect the work of the external auditor. Similarly, the external auditor would ordinarily inform the internal auditor of any significant matters which may affect internal auditing (Diamond, 2002).Appropriate audit tryoutsMeaning of audit test An audit test is a procedure performed by either an external or internal auditor in fellowship to assess the accuracy of various financial statement assertions. The dickens common categorizations of audit tests are material tests and tests of internal controls. Both compositors cases of tests are used in external and internal audits in order to bump off established audit objectives, as can be outlined in audit checklists or determined based on the results of audit questionnaires. Audit tests typically are performed on a sample basis over an existing group of similar transactions. taste approaches can either be statistical or non-statistical, with the ultimate goal being to obtain the most representative sample of the population before examination begins (Diamond, 2002).Types of audit testsIt is essential for internal auditors to understand how this method works, as well as its purpose. Also, devoted the phase of test methods that may be used during the audit process, it helps to distinguish sample from other types of examination. Identifying the qualities that distinguish sampling as a distinctive form of testing will provide good understandings for beginning auditors to know why it is used under certain circumstances and determine when to employ this process. During an operational audit, an internal auditor might use observation as an aid in evaluating a units procedures (Diamond, 2002).Simple Random Sampling In auditing, this technique practices sampling without replacement that is, once an item has been selected for testing it is not included in pop ulation and is not subject to re-selection. An auditor can implement simple random sampling in one of two ways computer programs or random number tables (Beasley, et.al, 2005).Systematic (Interval) Sampling This method describes the choice of sample items in such a way that there is an unchanging interval between each sample item. In this method, every Nth item is selected with a random start (Beasley, et.al, 2005). stratify (Cluster) Sampling This method describes the selection of sample items by breaking the population down into stratas, or groups. Each stratum is then treated separately. For this strategy to be effective, diffusion within clusters should be greater than distribution among clusters. An example of cluster sampling is the inclusion in the sample of all payments or cash disbursements for a particular month. If blocks of homogeneous samples are selected, the sample will be subjective (Beasley, et.al, 2005).Audit testsProcess subprogram analysis Develop process map s of the supplier delivery and accounts collectable/ approval processes and analyse these maps to identify potential for suppliers to refuse to deliver supplySurvey techniques Perform a supplier satisfaction survey to identify details, magnitude and external perspective of supplier concerns over the accounts payable process.Analytical review Perform benchmarking analytical tests to compare key process operating statistics with industry best practices and compare specific processes with best practice procedure.Inquiry through facilitated groups Conduct a focus group involving several major suppliers, key members of the accounts payable process and major departments required to authorize invoices (Beasley, et.al, 2005).Difference between management and auditors responsibilitiesIn considerable certainty, managements duty is to create internal control. Internal control includes the whole system of controls and procedures, both monetary and operational, which are established to lessen r isks and their impact, safeguard assets, and ensure efficiency and to inspire devotion to College policies and directives where, it is Internal Audits role to carry out an independent evaluation of the efficiency of these controls. Audit is not part of line management where internal audit does not grow and install procedures, make records or involve in any activity which could compromise its independence (Wilkinson, et. al, 2008).Audit planning Initial audit planning takes place before the thorough audit work begins, and in planning for a specific audit assignment an auditor must take on a plan with regard to the timing, nature and degree of the audit work to be carried out. The aims of the plan are to ensure proper attention is dedicated to the different areas of the audit and potential problems are identified. On the other hand, audit plan have to be observed as a organized plan of action plotting out the audit processes to be carried out with the aim of reporting on whether a st ated set of accounts show a factual and fair-minded view. However, the fact that the audit assignment is the commercial accomplishment of the audit firm should be recognised, and if the costs of carrying out the planned procedures are likely to exceed the client entities budgeted fee then this unevenness should be informed at the planning stage by discussing with the management of the entity (Gupta, 2009).Scope of audit planning It is importance to keep in mind the formal scope of audit work when considering audits role in risk management. Based on the results of the risk assessment, the internal audit activity should evaluate the adequacy and effectiveness of controls encompassing the organizations governance, operations, and information systems which should include reliability and integrity of financial and operational information. Effectiveness and efficiency of operation, Safeguarding of assets, compliance with laws, regulations, and contracts are the scope of audit planning (S pencer Pickett, 2006).Audit testing conduct tests of account balances and transactions are designed by determining the most efficient manner to hold up the assertions embodied in the account or transactions. There are many alternatives open to the auditor in planning audit tests. The following are the types of audit tests.Tests of effectiveness It is essential to determine whether the controls are effective over cash disbursements. Utilize the information performing an integrated audit of controls and account balances.Dual-Purpose Tests of Controls and Account Balances It is useful to determine whether the controls are effective to help plan the nature, timing, and extent of other audit tests, and test the accuracy of recording the related transactions.Substantive Analytical Tests It is essential to determine whether account relationships meet expectations, including the possibility that some of the receivables are not collectible.Direct Tests of Account Balances It is essential t o test the existence and dollar accuracy of account balances as stated at historical cost.Direct Tests of Transactions It is essential to test the existence of sales transactions (Gramling, et.al, 2009, Auditing A business risk, Cengage Learning Publishing (Gupta, 2009).Evidences that auditors collect from audit files and working papers There are 7 broad categories of evidence from which the auditor can choose which are physical examination, confirmations, documentation, analytical evidence, written representations, mathematical evidence, oral evidence, and electronic evidence(Online resource accessed at 20th May 2010, www.issai.org/media).Audit files and testing papersWorking papers provide evidence that an effective, efficient, and economic audit has been carried out. They should therefore be prepared with care and skill.Importance of working papers Working papers are important because they are necessary for audit quality control purposes provide assurance that the work delegated by the audit partner has been mighty completed provide evidence that an effective audit has been carried out increase the economy, efficiency, and effectiveness of the audit contain sufficiently detailed and up-to-date facts which justify the reasonableness of the auditors conclusions retain a record of matters of continuing significance to future audits(Online resource, accessed at 18th May 2010 www.accaglobal.com/pubs/students).Meaning of Statutory AuditStatutory Audit is a checking of accounts required by law where a municipality may be required by its own law to have an annual audit of financial records or a company which is governed by any police, the Law may require the audit to be conducted and the manner in which audit should be conducted and to whom the report of auditors should be presented (Stittle, 2003)Statutory Audit ReportStatutory Auditors Report is prepared in accordance with Article L(225-235) of the cut Commercial Code, on the report prepared by the Chairman of the Supervisory Board of Peugeot S.A., on the Internal Control procedures relating to the preparation and processing of financial and accounting information(Stittle , 2003).Purpose of statutory Audit ReportThe purpose of Statutory Audit Report is to present the fair presentation and the consistency with the financial statements of the information given in the Management Report of the Board of Directors, and in the documents addressed to the shareholders with respect to the financial position and the financial statements the fair presentation of the information provided in the Management Report of the Board of Directors in respect of allowance and benefits granted to certain company officers and any other commitments made in their favour in conjunction with, or subsequent to, their appointment, termination or change in function(Stittle , 2003).Contents of Audit ReportThe subjects of audit report are title, addressee, opening or Introductory Paragraph, Scope Paragraph, opinion para graph, signature, place of signature, and date of report. Auditors view of a financial statement, given without any reservations, such view basically states that the auditor feels the company followed all accounting rules properly and that the financial reports are an accurate demonstration of the companys financial condition opposite of subject opinion(Stittle, 2003).Statutory audit report The Audit Commissions auditors issue two types of statutory reportsreports in the public intimacy (RIPIs) issued under Section 8 of the Audit Commission Act 1998immediate referrals to the depository of State issued under Section 19 of the Audit Commission Act 1998Reports in the public interestWhere matters are stark and an auditor decides a matter should be brought to the attention of the public he does this by issuing a report under S8 of the Audit Commission Act 1998This report is issued to the health body concerned and copied to the Secretary of State. It is for the health body concerned t o make this public and to respond to the report and for the NHS Executive to ensure they do so( Sangster, and Wood, 2008)Qualified and unqualified reportAn unqualified report is a report from an independent auditor who has examined the accounting records and found no irregularities which has the following demeritsa) Lack of consistent application of generally accepted accounting principlesb) unquestionable doubt about going concernc) Auditor agrees with a departure from promulgated accounting principlesd) wildness of a mattere) Reports involving other auditorsA Qualified Opinion report is supplied when the auditor met one of two types of situations which do not comply with normally accepted accounting principles, however the rest of the monetary statements are properly presented. This type of judgement is very alike to an unqualified or clean opinion, but the report states that the monetary statements are clearly presented with a certain exception which is otherwise misstated. The two types of situations which would cause an auditor to issue this opinion over the unqualified opinion areSingle deviation from GAAP this type of qualification occurs when one or more areas of the financial statements do not conform to GAAP, but do not affect the rest of the financial statements from being fairly presented when taken as a whole. (Accounting Standards Board, 1988)