Finance and Accounting

Question 1

what is creative accounting

Answer 1

Accounting is not always necessarily factual, sometimes judgement is required. For example estimating the value of a project, for the same project two firms may come out with different numbers, the only way to see the return on a project is by waiting for it to happen.

Question 2

what are the dangers of creative accounting

Answer 2

If numbers are manipulated it puts shareholders, creditors and employees at risk. (Enron, Maxwell).
Risk of bankruptcy

Question 3

what concerns are related with external audits

Answer 3

manages have too closer relationship with its auditors, some auditing companies cannot resist the temptation of money and agree to cook the books. ENRON

Question 4

what are the most four common auditors?

Answer 4

KPMG, deloitte, PWC, Ernst and young

Question 5

What’s a downfall for auditors and technology

Answer 5

Audit industry has not be able to keep up with technology improvements

Question 6

How can creative accounting and judgment be controlled?

Answer 6

External auditors

Question 7

what is the aim of the external auditor?

Answer 7

the external auditor will only provide an opinion as to whether its financial claims are fair or not. some companies are so large and complex that it can be incredibly easy to hide information and hard for auditors to find it. sometime it will take for a whistle blower to leak inside info.

Question 8

A auditor must be?

Answer 8

Auditors must be qualified and independent of the company it audits. An auditor will make the manager aware of any issues, but it ultimately is up to the manager to act on any suggestions.

Question 9

how frequently should a company be audited?

Answer 9

A new audit company should be hired for each audit as what one company might miss may be picked up by another. However there are few companies who provide this service. A large company should have a rolling audit. small maybe not so often.

Question 10

Who do auditor refer to?

Answer 10

currently auditors refer to management but maybe it should be shareholders instead.

Question 11

what can be the negative effects of Creative/judgment accounting be?

Answer 11

Boost reporting profits, manipulate key ratios, hide financial risk, enhance the appearance of managers performance (to seek better bonuses or prestige)
Balances can be manipulated to make the project look more attractive. this could also be to encourage the bank to lend to them. however if claims to do not work as they were suppose to the company can claim the money back instantly from the firm. (HMV)

Question 12

Triple bottom line considers what 3 Ps

Answer 12

Profit, people and planet

Question 13

what does the triple bottom line measure?

Answer 13

Financial, Social and Environmental reporting

Question 14

who put the triple bottom line framework into place?

Answer 14

John Elkington

Question 15

What is the triple bottom line framework all about?

Answer 15

John Elkington put into place a new framework to measure performance. This is classed as an accounting framework called the Triple bottom line, he went beyond just looking at profits, return on investments and shareholder value and added on Environmental and Social dimension. He stated that this kind of reporting (TBL) was an important tool to support sustainability goals. He believed that all dimension of profit, people and the planet would provide the best outcome.

Question 16

what does the TBL capture?

Answer 16

The TBL “captures the essence of sustainability by measuring the impact of an organization’s activities on the world … including both its profitability and shareholder values and its social, human and environmental capital. The trick isn’t defining TBL. The trick is measuring it.

Question 17

what re the measurement of TBL

Answer 17

these can be difficult to measure, they could be measured in terms of cash (although people would argue that somethings cant be priced like the environment) there are other way to measure in units of land etc. Some companies with the same industry would maybe use the same measuring technique, for example a Rubbish collection company may try to reduce the amount of solid waste that goes into landfill. Or an aeroplane company might measure it based on distance travelled. This here demonstrates how companies can use it so universally because the framework can be personalized. Furthermore the TBL framework can be used for individual projects too. there is no set standard therefore companies can use measurement that’s suit them and there industry.