Accounting theory in Australia Essay Example | Topics and Well Written Essays - 1000 words

Accounting theory in Australia - Essay Example My reflection is based upon Watt and Zimmerman's contention that the managers of a firm will attempt to utilise methodologies to avoid taxes and dividendsIn this vein I waspreoccupied reflecting upon and reading on the Enron disaster and how numbers can not be seen as neutral and unbiasedTaking this course changed my perceptions about the very pith and substance of how I would ever perceive numbers.After taking this course I realised that numbers like words and conduct and can be just as easily manipulated by the human mind.Therefore they will be seldom neutral and unbiased.One of the most revealing moments were when I was able to see that even share valuation will be subject to novel accounting methodologies.For example I was able to see that in valuation of shares there would likely be an involvement of a lot of paper work in accounting terms in order to adjust the Capital Gains Tax valuations for rebasing and indexation purposes ,assess Inheritance Tax on shares and also assess th e situation now with employee share schemes.It was seen that there might be a biased view of accounting when the share valuation will have to account for It was seen many times that by choosing certain accounting techniques it would be possible to see a certain bias emerging.For example while using the Asset based approach it was seen to ignore factors like Industry prospects ,Management quality / stability ,Growth potential ,Competitive bidding and the alternative opportunities for the company being valued for tax purposed to avoid paying large amounts of tax money to the Inland Revenue .Infact it was possible to see a conflict of views here where as many times what seemed like creative accounting reminded me of biased accounting .It was learnt that the process of attempting to bias accounts is often referred to as 'creative accounting'. which often attacked for not being neutral and ethical as some techniques can cause bias: 1. Revenue may be recorded too early. In particular revenue from sales may be recorded in the accounts before the sale is agreed. 2. Bogus revenues may be recorded. For example refunds from suppliers might be recorded as revenues. 3. Profits from recurring business may be artificially boosted by the inclusion of one-off gains. Also losses from recurring business might be described as non-recurring. 4. Current expenses could be allocated to a later period. This could take the form of depreciating or amortizing too slowly. 5. Future expenses may be shifted to a current period. For example depreciation or amortization may be too rapid. 6. There may be a failure to record all liabilities. 7. Current income may be allocated to a later period. 8. Unrealistic valuations might be given to inventories. 9. Unrealistic bad debt provisions could be made. 10. Items may be held 'off-balance sheet'. Infact it is worth mentioning the hazards of careless accounting as learnt from the Enron Saga. For the purposes of accounting practices the most important thing to analyse is that who exactly in the accountancy/auditing profession should have taken responsibility for the shortcomings in the accounting records .These accountants were clearly abusing their authorities as watchdogs for shoddy practices and instead they perpetrated fraud on the investors.. The Statement of Accounting Standards 100 clearly allocates responsibility to auditors in the matter of financial statements 'the responsibility for the preparation of the financial statements is that of the directors of the entity'. In this vein I learnt that accounting is a profession requiring much responsibility.The should be able to scrutinise and guard any financial wrong doing on behalf of the directors with regard to Auditing and Accounting Standards. It is evident from the events leading up to Enron