Purpose, use and importance of different accounting records Essay

Accounting record is defined as the all of the certifications involved in the readying of fiscal statements and records which are relevant to fiscal reappraisal and audits which include entering of assets and liabilities, legers, diaries, and any other back uping paperss like bills.

Ledger: – Keeping leger is a must in all accounting system. Ledger is used for fixing test balance which checks the arithmetical truth of the accounting books. Ledger is the store-house of all sort of information which is used for fixing concluding histories and fiscal statements.

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Prime entry books: – The other one is premier entry books which are besides known as books of original entry are books where minutess are foremost recorded. The chief books of premier entry consists of gross revenues twenty-four hours book, purchase twenty-four hours book, gross revenues return twenty-four hours book, purchase return twenty-four hours book, general diary and hard currency book ( Ducha, et.al, 2008 ) .

Accounting dramas of import and utile function by developing the information for supplying replies to many inquiries faced by the users of accounting information. It provides information how good or bad the fiscal status of the concern is, which activities or merchandises have been profitable. Accounting is of import for a concern entity for the undermentioned grounds: –

Accounting record, set on the base of even patterns, will help a concern to compare consequences of one period with another period.

Insulating records, backed up by proper and echt verifiers are good grounds in a tribunal of jurisprudence.

Increased volume of concern consequences in big figure of minutess and no man of affairs can retrieve everything. Accounting records avoid the necessity of retrieving assorted minutess.

1.2 Cardinal constructs of accounting

Accumulations construct of accounting: Other than the hard currency flow statement, the histories have been set on an accruals footing. The accruals footing of accounting involves the non-cash of minutess to be mirrored in the fiscal statements for the period in which those effects are experienced and non in the period in which hard currency is really received or paid ( Open University Course Team, 2006 ) .

Traveling concern: The histories have been prepared on a traveling concern footing which means that the histories have been prepared on a traveling concern footing. It farther clears that the histories have been prepared on the premise that the authorization will go on to run for the foreseeable hereafter. The Avenue history and Balance Sheet assume no purpose to significantly restrict the metropolis Council ‘s operations ( Open University Course Team, 2006 ) .

Consistency construct: There are a figure of different ways in which some constructs can be applied. Each concern must take the attack that gives the most dependable image of the concern, non merely for this period, but over clip besides. Harmonizing to the consistence convention, when a method has been adopted for the accounting interventions of an point, the same method will be adopted for all subsequent happenings of similar points. However, it does non intend that the house has to follow the method until the house closes down. ( Open University Course Team,2006 ) .

Prudence Concepts: The history should be prudent when fixing fiscal statements. In other words, if something is in uncertainty, program for the worst and, if a dealing has non yet been completed ignore ant possible benefits that may originate from it ( Open University Course Team, 2006 ) .

Business entity construct: It is one of the chief accounting rules of accounting this construct says that Business should be treated individually from the belongings proprietor or investor In simple words we can state proprietor of the concern should be treated individually from the concern whatever net incomes come in to the concern should be taken in company history. Under the concern entity construct, the activities of a concern are recorded individually from the activities of its proprietors, creditors, or other concerns ( Ducha, et.al, 2008 ) .

Different factors of accounting system:

Computerised accounting system: Keeping accurate accounting records is a critical portion of pull offing an administration. Apart from assisting to maintain it afloat financially and lawfully, it is besides a demand of support organic structures. Smaller groups can normally pull off with simple book-keeping processs but bigger groups beguiling with larger amounts of money and more complex fiscal minutess may happen their work load eased by utilizing a computerised accounting system. The good intelligence is that there are easy to utilize and moderately priced computerised accounting bundles on the market that are either aimed at, or can be adapted to, voluntary sector administrations ( Ducha, et.al, 2008 ) .

Manual Accounting Systems: Accounting systems are manual or comprised. Understanding a manual accounting system is utile in placing relationships between accounting informations and studies. Besides, most computerised systems use rules from manual systems. In other words, Manual accounting and clerking systems are the traditional signifier of keeping a concerns histories and records. They involve maintaining assorted legers and files which typically include a hard currency book, gross revenues and purchase twenty-four hours books and junior-grade hard currency sheets. Although the usage of basic manual clerking systems requires small cognition or accomplishment in accounting, they are still the preferable method of accounting for those who have used them in the past ( Drew, et.al, 2000 ) .

Sing factors when utilizing computerised and manual accounting system:

The capacity to bring forth gross revenues /increase bills ; the necessity to compute/include VAT in accounting ; be how much can a steadfast truthfully afford on package, updates and support, the capableness to treat paysheet, and stock control are the sing factors of computerised accounting system.

Undertaking 2

Meaning of concern hazard: Business hazard is associated with the uncertainness of a company ‘s future hard currency flows, which are affected by the operations of the company and the environment in which it operates. It is the fluctuation in hard currency flow from one period to another that causes greater uncertainness and leads to the demand for greater compensation for investors. For illustration, companies that have a long history of stable hard currency flow require less compensation for concern hazard than companies whose hard currency flows vary from one one-fourth to the following, such as engineering companies ( Fabozzi, et.al, 2007 ) .

2.1 Components of concern hazards:

Operational hazards: The hazard of loss ensuing from deficient internal procedures, people and systems, or from external events which includes legal hazard. In other words, the hazard of loss ensuing from failure to follow with Torahs every bit good as prudent ethical criterions and contractual duties which includes the exposure to judicial proceeding from all facets of an Institution ‘s activities. The definition does non concentrate strategic or reputational hazards. In other words, operational hazards are concerned to heighten operational hazard appraisal attempts by promoting the industry to develop methodological analysiss and roll up informations related to pull offing operational hazard. Strategic and reputational hazard is non included in this definition for the intent of a minimal regulative operational hazard capital charge which focuses on the causes of operational hazard and the Committee believes that this is appropriate for both hazard direction and, finally, measuring ( Fabozzi, et.al, 200 ) .

Conformity Hazards: Conformity hazard can be defined as the current and possible hazard to net incomes or money originating from misdemeanors of, or non-conformance with, Torahs, regulations, approved patterns, internal policies, and methods, or moral criterions which arises in state of affairss where the Torahs or regulations predominating certain bank merchandises or activities of the Bank ‘s clients may be ill-defined or unverified. This hazard exposes the establishment to mulcts, civil money penalties, payment of amendss, and the elimination of contracts ( Fabozzi, et.al, 200 ) .

Liquid hazards: Liquid hazard can be explained as the current and nearing hazard to net incomes or capital arising from a bank ‘s incapableness to run into its duties when they come due without incurring unacceptable losingss. Liquidity hazard includes the inability to pull off unplanned lessenings or alterations in support beginnings. Liquidity hazard besides arises from the failure to acknowledge or turn to alterations in market conditions that affect the ability to neutralize assets rapidly and with minimum loss in value ( Neu, and Malz, 2007 ) .

Meaning of hazard direction: The true intension of pull offing the hazards is combined with the activities of human wherein the designation of the hazard, hazard rating, accommodating techniques to pull off it and decreasing of hazards by utilizing managerial schemes is done. The assorted ways in making hazard direction includes traveling the possible hazard to other group, forestalling the hazard from go oning, decreasing the hazard ‘s negative effects and acknowledging all the effects that a specific hazard might convey ( Blokdijk, 2007 )

2.2 Corporate administration

Harmonizing to Cadbury Report, Corporate administration is ‘the system by which companies are directed and controlled where the function of the stockholders is to name the managers and the external hearers, and to fulfill themselves that an appropriate administration construction is in topographic point where managers are responsible for puting the company ‘s strategic purposes, supplying the leading to set these into consequence, oversing the direction of the concern and coverage to stockholders on their stewardship. Corporate administration involves a set of relationships between a company ‘s direction, its board, its stockholders and other stakeholders. Corporate administration besides provides the construction through which the aims of the company are set, and the agencies of achieving those aims and monitoring public presentation are determined. ( Gupta, 2005 )

Cadbury codification:

The Cadbury Report, officially 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 constitution of the Committee in May 1991 by the Financial Reporting Council, the London Stock Exchange, and the accounting profession arose in response to the happening of fiscal dirts in the 1980 ‘s affecting UK listed Companies, which had led to a autumn in investor assurance in the quality of company ‘s fiscal coverage ( Cadbury, 1992 ) .

2.3 Fraud Risk Assessment

To be protective of itself and its stakeholders expeditiously and efficaciously from fraud, an organisation should acknowledge fraud hazard and the specific hazards that straight or indirectly associate to the organisation. A structured fraud hazard appraisal, tailored to the organisation ‘s size, complexness, industry, and ends, should be performed and updated sporadically. The appraisal may be integrated with an overall organisational hazard appraisal or performed as a stand-alone exercising, but should, at a lower limit, include hazard designation, hazard likeliness and significance appraisal, and hazard response ( ww.acfe.com/documents/managing-business-risk ) .

Pull offing the hazard of fraud, the hazard based attack:

A risk-based attack enables administrations to aim their resources, both for bettering controls and for pro-active sensing, at job countries. Developments in corporate administration, including the demand for statements on internal control, create the ambiance in which fraud can be considered as a set of hazards to be managed aboard other concern hazards. Pull offing the hazard of fraud should be embedded in the entireness of an administration ‘s hazard, control and administration processs. In wider sense, measuring and pull offing the hazard of fraud involves measuring the administration ‘s overall exposure to fraud, recognizing the countries most vulnerable to the hazard of fraud, delegating ownership, ciphering the graduated table of fraud hazard, reacting to the hazard of fraud ; and finding the success of the fraud-risk scheme ( ww.acfe.com/documents/managing-business-risk ) .

Measuring the Organisation ‘s Overall Vulnerability to Fraud: Vulnerability to fraud can be assessed at different degrees in an organisation where a speedy appraisal of the overall degree of hazard an administration is exposed to is frequently a good starting point and may foreground peculiar exposures where some action needs to be taken instantly instead than wait for the consequences of a more in-depth hazard appraisal to be completed. A fraud hazard appraisal should to boot be carried out during the development of any new policies, activities or operations to determine whether any new hazards arise that demand to be managed. The hazard appraisal should besides be reviewed and re-assessed whenever a alteration in policy occurs or when alterations are made to the manner in which a policy is to be implemented ( ww.acfe.com/documents/managing-business-risk ) .

Fraud hazard designation may include garnering external information from regulative organic structures, industry beginnings, cardinal counsel puting groups ) , and professional organisations, the American Institute of Certified Public Accountants ( AICPA ) , the Association of Certified Fraud Examiners ( ACFE ) , the Canadian Institute of Chartered Accountants ( CICA ) , The CICA Alliance for Excellence in Investigative and Forensic Accounting. Internal beginnings for placing fraud hazards should include interviews and brainstorming with forces stand foring a wide spectrum of activities within the organisation, reappraisal of whistle blower ailments, and analytical processs. A proper and working fraud hazard designation procedure includes an computation of the inducements, force per unit areas, and opportunities to perpetrate fraud. Employee incentive plans and the prosodies on which they are based can supply a map to where fraud is most likely to happen. Fraud hazard appraisal should see the possible override of controls by direction every bit good as countries where controls are weak or there is a deficiency of segregation of responsibilities ( Vallabhaneni, 2008 ) .

The velocity, functionality, and handiness that created the tremendous benefits of the information age have besides increased an organisation ‘s exposure to fraud. Therefore, any fraud hazard appraisal should see entree and override of system controls every bit good as internal and external menaces to informations unity, system security, and larceny of fiscal and sensitive concern information ( Costa Lewis, 2004 ) .

Measuring the likeliness and significance of each possible fraud hazard is a subjective procedure that should see non merely pecuniary significance, but besides significance to an organisation ‘s fiscal coverage, operations, and repute, every bit good as legal and regulative conformity demands. An initial appraisal of fraud hazard should see the built-in risk8 of a peculiar fraud in the absence of any known controls that may turn to the hazard.

Hazard appraisal

The control environment

Control activities

Information and communicating

Monitoring ( Costa Lewis, 2004 ) .

THE COSO MODEL: In the United States many houses have adopted the internal control constructs bing in the study of the Committee of Sponsoring Organizations of the Tread manner Commission ( COSO ) . Published in 1992, the COSO study describes internal control as: A procedure, affected by an entity ‘s board of managers, direction and other forces, designed to supply sensible confidence sing the accomplishment of aims in the undermentioned classs:

effectivity and efficiency of operations,

dependability of fiscal coverage, and

Conformity with applicable Torahs and ordinances.

COSO describes internal control as dwelling of five indispensable constituents. These constituents, which are subdivided into 17 factors, include:

The control environment

Hazard appraisal

Control activities

Information and communicating

Monitoring ( Vallabhaneni, 2008 ) .

Undertaking 3

3.1 Duties and duties of hearer

In most states the hearer has a statutory responsibility to do a study to the entity ‘s members on the truth and equity of the entity ‘s one-year histories. As we have seen in the foregoing subdivision, this study must province the hearer ‘s sentiment on whether the statements have been prepared in conformity with the relevant statute law and whether they give a true and just position of the net income or loss for the twelvemonth and province of personal businesss at the twelvemonth terminal. The responsibility to describe on the truth and equity of the fiscal statements is the primary responsibility associated with the external audit.

The hearer has a responsibility to organize an sentiment on certain other affairs and to describe any reserves. The hearer must see whether:

1. The entity has kept proper accounting records ;

2. The entity ‘s balance sheet and income statement agree with the underlying accounting records ;

3. All the information and accounts that the hearer considers necessary for the intents of the audit have been obtained and whether equal returns for their audit have been received from subdivisions non visited during the audit ;

4. The entity has complied with the relevant statute law ‘s demands in regard of the necessary revelations. If the entity has non made all the revelations required the audit study should, if possible, incorporate a statement of the needed specifics ( Vallabhaneni, 2008 ) .

3.2 Relationship between internal and external audit

The coordination of internal audit activity with external audit activity is really of import from both points of position: from external audit ‘s point of position is of import because, in this manner, external hearers have the possibility to raise the efficiency of fiscal statements audit ; the relevance from internal audit ‘s point of position is assured by the fact that this coordination assures for the internal audit a asset of indispensable information in the appraisal of hazards control

The function of internal auditing is determined by direction, and its aims differ from those of the external hearer who is appointed to describe independently on the fiscal statements. The internal audit map ‘s aims vary harmonizing to direction ‘s demands. The external hearer ‘s primary concern is whether the fiscal statements are free of material misstatements ; the external hearer should obtain a sufficient apprehension of internal audit activities to place and measure the hazards of material misstatement of the fiscal statements and to plan and execute farther audit processs. The external hearer should execute an appraisal of the internal audit map, when internal auditing is relevant to the external hearer ‘s hazard appraisals. Liaison with internal auditing is more effectual when meetings are held at appropriate intervals during the period. The external hearer would necessitate to be advised of and hold entree to relevant internal auditing studies and be kept informed of any important affair that comes to the internal hearer ‘s attending which may impact the work of the external hearer. Similarly, the external hearer would normally inform the internal hearer of any important affairs which may impact internal auditing ( Diamond, 2002 ) .

3.3 Appropriate audit trials

Meaning of audit trial: An audit trial is a process performed by either an external or internal hearer in order to measure the truth of assorted fiscal statement averments. The two common classifications of audit trials are substantial trials and trials of internal controls. Both types of trials are used in external and internal audits in order to make established audit aims, as can be outlined in audit checklists or determined based on the consequences of audit questionnaires. Audited account trials typically are performed on a sample footing over an bing group of similar minutess. Sampling attacks can either be statistical or non-statistical, with the ultimate end being to obtain the most representative sample of the population before proving Begins ( Diamond, 2002 ) .

Types of audit trials

It is indispensable for internal hearers to understand how this method works, every bit good as its intent. Besides, given the assortment of proving methods that may be used during the audit procedure, it helps to separate trying from other types of scrutiny. Identifying the qualities that distinguish trying as a typical signifier of proving will supply good apprehensions for get downing hearers to cognize why it is used under certain fortunes and determine when to use this procedure. During an operational audit, an internal hearer might utilize observation as an assistance in measuring a unit ‘s processs ( Diamond, 2002 ) .

Simple Random Sampling: – In scrutinizing, this technique patterns trying without replacing ; that is, one time an point has been selected for proving it is non included in population and is non capable to re-selection. An hearer can implement simple random trying in one of two ways: computing machine plans or random figure tabular arraies ( Beasley, et.al, 2005 ) .

Systematic ( Interval ) Sampling: – This method describes the pick of sample points in such a manner that there is an unchanging interval between each sample point. In this method, every “ Nth ” point is selected with a random start ( Beasley, et.al, 2005 ) .

Stratified ( Cluster ) Sampling: – This method describes the choice of sample points by interrupting the population down into strata ‘s, or groups. Each stratum is so treated individually. For this scheme to be effectual, distribution within bunchs should be greater than distribution among bunchs. An illustration of bunch sampling is the inclusion in the sample of all payments or hard currency expenses for a peculiar month. If blocks of hom

ogeneous samples are selected, the sample will be subjective ( Beasley, et.al, 2005 ) .

Audited account trials

Procedure mapping analysis: Develop procedure maps of the provider bringing and histories payable/ blessing procedures and analyze these maps to place possible for providers to decline to present supply

Survey techniques: Perform a supplier satisfaction study to place inside informations, magnitude and external position of provider concerns over the histories collectible procedure.

Analytic reappraisal: Perform benchmarking analytical trials to compare cardinal procedure runing statistics with industry best patterns and comparison specific processes with best pattern process.

Inquiry through facilitated groups: Conduct a focal point group affecting several major providers, cardinal members of the histories collectible procedure and major sections required to authorise bills ( Beasley, et.al, 2005 ) .

Difference between direction and hearer ‘s duties:

In considerable certainty, direction ‘s duty is to make internal control. Internal control includes the whole system of controls and processs, both pecuniary and operational, which are established to decrease hazards and their impact, safeguard assets, and guarantee efficiency and to animate devotedness to College policies and directives where, it is Internal Audit ‘s function to transport out an independent rating of the efficiency of these controls. Audit is non portion of line direction where internal audit does non turn and put in processs, make records or affect in any activity which could compromise its independency ( Wilkinson, et. Al, 2008 ) .

Audited account planning: Initial audit planning takes topographic point before the thorough audit work begins, and in be aftering for a specific audit assignment an hearer must take on a program with respect to the timing, nature and grade of the audit work to be carried out. The purposes of the program are to guarantee proper attending is dedicated to the different countries of the audit and possible jobs are identified. On the other manus, audit program have to be observed as a organized program of action plotting out the audit processes to be carried out with the purpose of describing on whether a declared set of histories show a factual and fair-minded position. However, the fact that the audit assignment is the commercial gesture of the audit house should be recognised, and if the costs of transporting out the planned processs are likely to transcend the client entities budgeted fee so this variability should be informed at the planning phase by discoursing with the direction of the entity ( Gupta, 2009 ) .

Scope of audit planning: It is importance to maintain in head the formal range of audit work when sing audit ‘s function in hazard direction. Based on the consequences of the hazard appraisal, the internal audit activity should measure the adequateness and effectivity of controls embracing the organisation ‘s administration, operations, and information systems which should include dependability and unity of fiscal and operational information. Effectiveness and efficiency of operation, Safeguarding of assets, conformity with Torahs, ordinances, and contracts are the range of audit planning ( Spencer Pickett, 2006 ) .

Audited account testing: Direct trials of history balances and minutess are designed by finding the most efficient mode to confirm the averments embodied in the history or minutess. There are many options open to the hearer in be aftering audit trials. The following are the types of audit trials.

Trials of effectivity: It is indispensable to find whether the controls are effectual over hard currency expenses. Use the information executing an integrated audit of controls and history balances.

Dual-Purpose Trials of Controls and Account Balances: It is utile to find whether the controls are effectual to assist be after the nature, timing, and extent of other audit trials, and prove the truth of entering the related minutess.

Substantial Analytic Trials: It is indispensable to find whether history relationships meet outlooks, including the possibility that some of the receivables are non collectable.

Direct Trials of Account Balances: It is indispensable to prove the being and dollar truth of history balances as stated at historical cost.

Direct Trials of Minutess: It is indispensable to prove the being of gross revenues minutess ( Gramling, et.al, 2009, Auditing: A concern hazard, Cengage Learning Publishing ( Gupta, 2009 ) .

Evidences that hearers collect from audit files and working documents: There are 7 wide classs of grounds from which the hearer can take which are physical scrutiny, verifications, certification, analytical grounds, written representations, mathematical grounds, unwritten grounds, and electronic grounds ( Online resource: accessed at 20th May 2010, www.issai.org/media ) .

Audit files and proving documents:

Working documents provide grounds that an effectual, efficient, and economic audit has been carried out. They should hence be prepared with attention and accomplishment.

Importance of working documents: Working documents are of import because they are necessary for audit quality control purposes provide confidence that the work delegated by the audit spouse has been decently completed provide grounds that an effectual audit has been carried out increase the economic system, efficiency, and effectivity of the audit contain sufficiently detailed and up-to-date facts which justify the rationality of the hearer ‘s decisions retain a record of affairs of go oning significance to future audits ( Online resource, accessed at 18th May 2010: www.accaglobal.com/pubs/students ) .

Undertaking 4

4.1 Meaning of Statutory Audit

Statutory Audit is a checking of histories required by jurisprudence where a municipality may be required by its ain jurisprudence to hold an one-year audit of fiscal records or a company which is governed by any Law, the Law may necessitate the audit to be conducted and the mode in which audit should be conducted and to whom the study of hearers should be presented ( Stittle, 2003 )

Statutory Audit Report

Statutory Auditors ‘ Report is prepared in conformity with Article L ( 225-235 ) of the Gallic Commercial Code, on the study prepared by the Chairman of the Supervisory Board of Peugeot S.A. , on the Internal Control procedures associating to the readying and processing of fiscal and accounting information ( Stittle, 2003 ) .

Purpose of statutory Audit Report

The intent of Statutory Audit Report is to show the just presentation and the consistence with the fiscal statements of the information given in the Management Report of the Board of Directors, and in the paperss addressed to the stockholders with regard to the fiscal place and the fiscal statements ; the just presentation of the information provided in the Management Report of the Board of Directors in regard of wage and benefits granted to certain company officers and any other committednesss made in their favor in connexion with, or subsequent to, their assignment, expiration or alteration in map ( Stittle, 2003 ) .

Contentss of Audit Report

The topics of audit study are title, addressee, opening or Introductory Paragraph, Scope Paragraph, sentiment paragraph, signature, topographic point of signature, and day of the month of study. Auditor ‘s position of a fiscal statement, given without any reserves, such position fundamentally states that the hearer feels the company followed all accounting regulations decently and that the fiscal studies are an accurate presentation of the company ‘s fiscal status antonym of qualified sentiment ( Stittle, 2003 ) .

Statutory audit study: The Audit Commission ‘s hearers issue two types of statutory studies:

studies in the public involvement ( RIPIs ) issued under Section 8 of the Audit Commission Act 1998

immediate referrals to the Secretary of State issued under Section 19 of the Audit Commission Act 1998

Reports in the public involvement

Where affairs are serious and an hearer decides a affair should be brought to the attending of the populace he does this by publishing a study under S8 of the Audit Commission Act 1998

This study is issued to the wellness organic structure concerned and copied to the Secretary of State. It is for the wellness organic structure concerned to do this populace and to react to the study and for the NHS Executive to guarantee they do so ( Sangster, and Wood, 2008 )

4.2 Qualified and unqualified study:

An unqualified study is a study from an independent hearer who has examined the accounting records and found no abnormalities which has the undermentioned demerits

a ) Lack of consistent application of by and large accepted accounting rules

B ) Substantial uncertainty about traveling concern

degree Celsius ) Auditor agrees with a going from promulgated accounting rules

vitamin D ) Emphasis of a affair

vitamin E ) Reports affecting other hearers

A Qualified Opinion study is supplied when the hearer met one of two types of state of affairss which do non follow with usually accepted accounting rules, nevertheless the remainder of the pecuniary statements are decently presented. This type of opinion is really likewise to an unqualified or “ clean sentiment ” , but the study states that the pecuniary statements are clearly presented with a certain exclusion which is otherwise misstated. The two types of state of affairss which would do an hearer to publish this sentiment over the unqualified sentiment are:


Single divergence from GAAP this type of making occurs when one or more countries of the fiscal statements do non conform to GAAP, but do non impact the remainder of the fiscal statements from being reasonably presented when taken as a whole. ( Accounting Standards Board, 1988 )


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