Accounting theory and Contemporary Issues

Question: Describe about the accounting theory and contemporary issues. Answer: 1.AIS the full form of which is Accounting Information System may be referred as the refined structure of the firm, which helps in storing, retrieving, gathering, processing and managing financial data. The CFO uses this data or the chief financial officer or it can be managers, accountants, tax agencies, consultants, business analysts, auditors and regulatory authorities (Penman 2013). The entire system is one of the key aspects that help in retaining the necessary financial data confidential. Highest level of accuracy is maintained through the system of AIS by the accounts. The next important part includes preparing the methodological aspects that would gather the crucial financial data and help in accessing the information correctly (Flood 2014). The necessity of the AIS is to keep the data safe, secure and intact. The components of the accounting system consists of the six essential factors like methodology, people, internal controls, data, infrastructure of the IT and software. As per the area of AIS it might be said that professionals are the accountants of the firm people are considered to be the system users. This is one of the major elements to keep the running of the firm smooth and productive. The accounting system is used by the financial department of an organization to gather the necessary data and to retain the same for the growth of the organization. The auditors, consultants, managers, CFOs for maintaining well organized departments in organizations, rightfully use this system (Blankespoor et al. 2013). Common information could access by the firm at any point of time through the database or the software. This helps in reducing time consumption and to keep the data and handy. Both internal and external processes could do the collection of the data and retrieving the same. The internal processes include the staffs or the employees of the organization. On the contrary, the external processes include customers who order online (Guthrie, Ricceri and Dumay 2012). The data is collected from these sources to analyze, mange and assess the situation of the firm. The software of the AIS usually codifies that figures that is obtained from the procedures or instructions. The efficiency of the firm is related to the tracking of the data or the information. The data that is collected in the accounting system procedure is the financial information of the firm. However, with the improvement of technology the software and the database are one of the most positive elements that would help in the growth and assessment of the organisation. The different types of data usually includes sales orders, report regarding sales analysis, vendor invoices, inventory data, purchase requisites and billing statements of customers (Henderson et al. 2013). The integration of the hardware and software of AIS is helps in retaining all the necessary financial information correctly and accurately. However, the hardware must be compatible with the software. One of the pivotal jobs of the internal structure of the organization is to secure the confidential data safely. This is correctly done by the organization that the internal structure is transparent in the scenario. This could be understood with the help of a case in 2002 where a company called WorldCom had a fraudulent issue of about $4 billion. The auditors could save the form from bankruptcy by removing the CFOs from the data collected or received from the AIS. Hence, it might be said that AIS is one of the help in the organization for maintain clear and transparent data for the security of the internal structure (Blankespoor et al. 2013). Few factors are ensured by the AIS. One of the basic features is the qualitative features that are integration of the primary and secondary data. The next important features include consistency and comparability. These aspects help in the maintenance of the validity and the reliability of the organization. One of the key aspects of the organization is to reflect the validity in the data. This is ensured correctly by the AIS in case of large firms where manual track of the financial data is impossible to retain. Validity includes the faithfulness in the system and the neutrality in the system. Value feedback and timeline are the other crucial factors that are related to the reliability and validity of the system. Prediction is one the other key aspect that helps in analyzing the prediction or the future hold of the company in the financial data. This also includes the timeline that is one of the essential attributes of making the right decision (Blankespoor et al. 2013). . Feedback value is one of the main components in analyzing the decision or the process of the organization. Reliability is one another key component that is part of crucial processes like the inventory management. In the inventory management, the importance lies in the stock where fraud cases could be easily handled with the perspective of reliability. Faithfulness in the system is retained through the balance sheet that maintains the inventory of the company. The aspect of neutrality is the help that is required in the accounting standards. The standards of accounting are largely influenced by the investors and the economic consequences. The interest groups are largely affected in case of false neutrality (Bell and Griffin 2012). However, in case of the system and the database the neutrality is maintained effectively as there are no partial manual adjustments. The difficulty in maintaining the clarity in the economic scenario and neutrality is usually resolved by FASB. The mangers of the organisation receive their rewards based on the profit report that is produced by them. In such cases, the accounting standard could be fairly analyzed through the GAAP model. The best service and the differences in the neutrality could be analyzed through the data system. The improvement of the financial data could be clearly understood through the comparison of different years. This is easy as the accounting system software is one of the easiest means to receive the scenario of financial data. Hence, it might be said in this regard, that AIS is effective and impartial system without any issues in safety or security. The transparency in the system helps the company to grow without any fraud cases or chances or being bankrupt ed (Moser and Martin 2012). 2. As per the authors Watts and Zimmerman, the concept of Positive Accounting theory or famously known as PAT is considered to be effective to implement a suitable accounting practice in case of any modern business organization. Most of the modern business organizations implement several objectives that are required to attain a set of financial goals and services. This form of accounting theory assists the management of the firm attains their desired form of objectives in case of making and recording financial transactions. Many accounting theories do not allow this; however, positive accounting theory does so (Flood 2014). The major drawbacks for most of the accounting standards that the firms are implementing are that they have failed to provide a suitable guideline in case of some basic financial transactions. The accountants fail to record these types of transactions due to the amount of complexity attached to them. On the contrary, it can be inferred that positive accounting theory helps all the business firms to implement any type of transaction recording method that is suitable for the respective business organization. This type of method assists the accountants to minimize the discrepancies and loopholes associated with each financial transaction. There is a positive outcome associated with this theory and due to this reason, it is important for the modern business firms to implement and utilize this theory within their system. The main reason behind choosing positive accounting theory is that it assists the accountants and financial analysts to know about actual implications of several transact ions. In addition to this, the financial impact can also be measured with the help of effective utilization of positive accounting theory. Guthrie, Ricceri and Dumay (2012) opine that there are two major perspective that are related to the core of positive accounting theory. These are opportunistic perspective and efficiency perspective (Krahel and Titera 2015). The perspective of opportunistic refers that the financial analysts of the organization utilize this accounting theory in order to re-build their self-interest. It can be inferred that these self-interest can also be direct positive correlation with the interest of the respective organization. Apart from this, several other factors are associated with this perspective. One of the factors is debt-equity hypothesis. This further infers that the accountants and top-management of the firm tends to reflect higher amount of profits. Such kind of strategy will help the firm to pay off their debt, as it will have a negative impact on their capital structure. Due to this reason, PAT is preferred when it comes to modern business accountants. Another point of view is political cost. In this case, a business organization is assumed to highlight lower amount of profits than the actual one. Such kind of strategies helps the firms to get unsighted from the various political leaders who are present in the market in which the respective organization is operating (Greenstein and Hunton 2015). Another factor or assumption is associated with opportunistic perspective that is bonus plan hypothesis. In this type of hypothesis, the respective manager of accountants of the firm intends to manipulate several figures. This has a negative impact over the firms performance at the end of the financial year (Penman 2013). On the contrary, it can be inferred that in case of efficiency perspective, PAT assists the managers and accountants to select the best possible accounting method in order to recognize a fair picture of the operations of the business (Moser and Martin 2012). From this, it can be inferred that there are several positive things that are associated with the implementation of PAT. However, on the contrary many modern authors have opined that there are several loopholes in this respective accounting theory. Firstly, PAT evaluates the respective result on the application of any accounting method. Therefore, the exact solution or analysis is not available to the managers or accountants of the business firms. Another assumption that the theory has made is that it assumes that significance of employees interest and managers interest goes side by side. However, in reality, it differs in most of the cases. This theory may also create a wide negative impact on the financial statements of any firm is when the interest of both the parties contradict each other (Bell and Griffin 2012). Several accounting procedures are present that can assist the firm to select the best alternative method that the respective organization can use. These forms of methods are as follows:- Tax laws method Cost assessment method Selected leadership procedure Determination of industry constituents (Henderson et al. 2013) In case of tax law method, the business organization evaluates a respective accounting method based on the current laws and regulations. In addition to this, it can be inferred that the organization takes into account various tax concessions based on the theory they have opted with (Krahel and Titera 2015). In case of cost assessment method, the financial position of the firm plays a pivotal role. It can be inferred that the managers of the firm can take a call on what form of cost assessment method they can select. This can be in the form historical cost method or fair value method. Selected leadership procedure infers that the management of the firm will select an accounting procedure based on the existing leadership. On the other hand, in case of determination of industry constituents the firm selects ban accounting method based on the nature of the industry in which it operates Greenstein and Hunton 2015). Therefore, it can be concluded that there are several accounting method that a respective business firm can select. PAT helps to guide the accounts and the higher-level managers of the business firms to select the best alternative accounting method that will help them to meet their needs and objectives. References Baxter, W., Davidson, S. and Davidson, S. (2014).Studies in Accounting. Hoboken: Routledge, Taylor and Francis Group. Bell, T.B. and Griffin, J.B., 2012. Commentary on auditing high-uncertainty fair value estimates.Auditing: A Journal of Practice Theory,31(1), pp.147-155. Blankespoor, E., Linsmeier, T.J., Petroni, K.R. and Shakespeare, C., 2013. 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