Contemporary Issues in Accounting (U10473)

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 Table of Contents
Introduction:....................................................................................................................................3

1.1 Basic theory of financial accounting and management accounting..................................3

1.2 Practice of financial accounting and management accounting..............................................4

1.3 Basic terms and concepts of financial accounting and management accounting..................4

5. Current contemporary issues affecting the accounting discipline...............................................6

Conclusion.......................................................................................................................................7

References........................................................................................................................................9
Introduction:
Pursuit of economic independence is a motivator for stepping out on one's own. Before making
significant decisions, business owners and managers must consider profits, cash flow, and the
organization's financial health. To optimize earnings, the owner of a business must continuously
evaluate and alter all operating procedures (Ameen et al., 2018). The majority of firms endure
losses and negative cash flows in their early phases. Having a strong handle on the money is vital
at this time. Even though there will be more expenses than revenue in the beginning, managers
must nevertheless have sufficient funds on hand to pay employees and suppliers. The owner must
establish projections based on predicted negative cash flows for determining how much money
will be necessary to keep the business operating until it begins to generate a profit.

As a firm matures and grows, it will need more cash to fund its development. To cover these
expenses, it is necessary to plan ahead and establish a budget. Financial managers take decision
for whether to employ internal cash or external lenders to finance expansion (Rikhardsson and
Yigitbasioglu, 2018). Aspects of solid financial management include locating the most cost-
efficient source of capital, controlling cost of capital, and avoiding the balance sheet from being
overleveraged with debt.

1.1 Basic theory of financial accounting and management accounting

Accounting theories are constrained by the accounting conceptual framework. This framework is
provided by Financial Accounting Standards Board (FASB), the non-governmental body charged
with explaining and standardizing the objectives of financial reporting for big and small
enterprises (Langfield-Smith et al., 2018). In addition, accounting theory may be seen as the
cognitive processes that help evaluate and lead accounting operations. With the ongoing updating
of laws and regulations comes a growing need for new accounting procedures, which is where
accounting theory comes in. It is basically a formulation of quantitative transactions that have
taken place in the past. Utilization is the most fundamental component of accounting theory. It
entails that, within the sphere of corporate finance, all financial statements should provide
relevant information which assists the reader in making informed decisions about the
organization (Lehner et al., 2019). Accounting theory is thus meant to be adaptive so that it may
continue to deliver meaningful financial information despite changes in the regulatory
environment.
1.2 Practice of financial accounting and management accounting
According to accounting theory, all accounting data should be relevant, trustworthy, comparable,
and consistent (Burritt et al., 2019).While management accounting is to provide useful
quantitative information to only the management, on the other hand financial accounting is for
all the stake holders of the company. In the end, all accountants and financiers are obligated to
adhere to four accounting theory-based assumptions. First, it is presumed that a firm may be sued
apart from its owners and creditors (Krutova et al., 2020). The second confirms faith in the
company's survival and success. The third premise is that all budgets are prepared using dollar
amounts as opposed to alternative measuring systems, such as output units. Last but not least,
every firm must prepare monthly or annual financial statements.

1.3 Basic terms and concepts of financial accounting and management accounting
Business entity notion According to the concept of a corporation as an economic entity, separate
entity, or business entity, it is possible for a business to exist independently of its owner. The
owner's personal income, expenses, liabilities, and assets are not permitted to be reflected in the
company's accounts (Osadcha et al., 2018). The process of keeping track of a company's
incoming and outgoing cash, as well as its tax write-offs, is made more transparent. This
translates into an absolute need for GAAP compliance and perfect correctness in all financial
statements (GAAP). By adhering to GAAP, a company may guarantee that its financial
statements are comparable to its past financials and comparable to those of other businesses
(Diab, 2021).

Money measurement concept: Under this accounting assumption, firms are only obliged to
account for transactions having a monetary value (Hiromoto, 2019). The transaction is not
included in the report without a definite monetary value (Bento et al., 2018). Due to the
difficulties of monetizing these transactions, they may not be shown in the company's financial
accounts, although having an influence on the company's bottom line. Intangible value includes
the competence of employees, quality of goods, efficiency of workers, market sentiment, firm
productivity, and satisfaction of stakeholders.

The accounting period idea specifies a timeframe over which an entity must maintain financial
records and make them available for internal and external inspection. In certain instances, a
company's fiscal year and accounting period will coincide (Le and Nguyen, 2019). A business
may select three to six months for internal reporting, or they may give monthly financial reports
for study of cash flow conditions. Internal reporting may be done whenever is most practicable
for management, although reporting to investors, the government, and the IRS is often done
annually.
5. Current contemporary issues affecting the accounting discipline
Financial irregularities

Accounting's basic value is the accurate recording and analysis of monetary and associated
business transaction information (Lehner et al., 2019). The person filling out this application
must thus carefully examine how each transaction and event will affect the business's bottom
line. For this to be correct, the monetary value of each transaction must be properly stated so that
an accurate financial report may be generated. Specifically, challenges have occurred in the
accounting cycle causing financial irregularities in terms of how the persons engaged see the
necessity of precision and transparency in accounting (Burritt et al., 2019). Consider the issue of
declaring one's annual income in order to determine one's tax responsibilities. Some
professionals and businesses put this problem at risk for personal financial gain, such as
minimizing their tax duty by underreporting revenue (Krutova et al., 2020). These unethical acts
are particularly prevalent among professionals who self-declare their income, and their
accountants often support them. Because their accountants are so well-versed in the
fundamentals of financial accounting, they are able to commit a certain level of fraud without
violating procedures or ethical standards, greatly to their financial advantage (Osadcha et al.,
2018). By utilizing accounting not for economic analysis but to collect special benefits and
incentives, they undermine the accurate and honest culture of accounting standards.

Social Biases

The social side of the modern accounting profession is an additional significant issue. There are
several contributors to the subject of accounting in the current day, but two groups, based mostly
on gender, tend to dominate (Hiromoto, 2019). These gender inequalities have a substantial
influence on how accounting is practiced and are hence of societal concern. Undeniably, the
gender gap issue persists, and it penetrates the discipline of accounting, perhaps giving a biased
element to the profession (Diab, 2021). The gender issue has a significant role in the social
structure, causing contradictions and conflicts between the two sides. This is evident in the day-
to-day activities of accountants, since people who participate in this economic activity share this
perspective (Bento et al., 2018). As a consequence of the gender disparity issue, some biases
exist in the profession of accounting, such as the cultural perception that men are more
financially successful than women. This variable influences men's and women's perceptions of
the degree to which society is prejudiced or unjust against each gender in various ways. This bias
thought displays itself in the actual world via the unequal salary of male and female accountants,
disparities in expert judgement about the outcomes of their job, and hiring preferences based on
gender.

Political Bias

Practically every sector of the economy and society is influenced by politics. Typically, the
political frameworks of accounting are entrenched into the company's informal organization.
Since the political system's application in accounting can be traced largely to the enterprise's
organizational structure, people's perceptions of the veracity and content of each output are
prejudiced and inconsistent (Podolianchuk et al., 2019). Financial reports that have been
examined and audited are more reputable (Le and Nguyen, 2019). Nonetheless, the political
system has a tendency to influence people's attitudes and perceptions, which impacts the
appraisal of each report's allegations. Real-world instance: One of the accountants conducts
financial fraud and hides it with skill. The second accountant finds the plan by following the
money trail (Wadan et al., 2019). Since they are more significant, the arguments of the second
accountant should be more substantial. Due to the hierarchical disparity between the two,
however, the first's position lends more weight to his or her arguments and the person behind
them, resulting in a broader and more prejudiced appraisal of the situation (Jędrzejka, 2019). He
may use his political influence as chief accountant to attack his opponent in an effort to enhance
the reputation of his organization. Thus, the influence of the political system on organizational
structure may result in accounting errors and leaks, undermining the purpose of accounting
reports to be transparent and honest.

Conclusion
Financial and managerial accounting is a newer subfield of accounting. Management accounting
organizations outside national borders are uncommon. Different management accountant
associations are threatened by professional drift (associations following members into related
industries) and cognitive drift (increasing overlap of professions in comparable areas). The
profession is solidifying in response to these challenges. Accounting for management assists
managers with plan execution and stakeholder management. The merging of financial and
management information technologies is necessary. These needs must be addressed seriously
since financial reporting and audit-focused professional organizations dominate the field.
Management accounting has evolved into a practice-based technology that extends beyond
investment-focused information and anticipates stakeholder information requirements; hence,
there are incentives to create it. As professions, financial and management accounting are
converging.
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