Accounting and Auditing


Introduction

Organizations always strive hard for the economic prosperity and to initiate the same, organizations have to suppose and undertake many decisions in total. Unfortunately, there is no single definition of the term “Organization” exist in this world, as every author has had defined this particular concept in somewhat different manner (Cinnamon & Larsen, 2006). According to the common consensus of number of authors, ‘Organization is a place, wherein number of departments work together merely for the achievement of a single and pre specified goal in total”. Among different departments of an organization, the name of accounting department is one of them, which has its own recognition and importance in the broad nutshell (Cinnamon & Larsen, 2006).

Accounting is the name recording and interpreting the financial data in a manner than it can identify the operations of a company as a whole. Though, accounting is a dominating and crucial function for a company, but it requires high amount of regulations and strict clarification in order to operate with perfection, within the premises of an entity. Auditing is one of the major things which required by the organizations to be initiated accordingly, because it is essential to initiate the stance of auditing in an organization in order to keep its momentum of operation going in a perfect and well established manner (Cinnamon & Larsen, 2006).

The main theme of this paper, also relates to auditing and it relates to a case study of a company. The main perspective of this assignment is to pen down a report, specifically for the partners of Rich & Co LLP in which all the current and potential non audited services could be identify along with nature of threats.

The Scenario

Jonathan Sprague (JS) has been hired as the audit manager on a new Client with the name of SEPI Inc, deals in property. The company is listed on the London Stock Exchange (LSE) and the company takes its accounting and audit consultation and services from Rich and Co. LLP. Rich and Co.LLP has initiated a new marketing strategy, in which it is promoting non audit services to the clients. There are total six different issues, which have been identified in the scenario and all of the six issues needs to be reflected in the report. Each issue would be identified according to the situation and should also identify the related threats with the non audited services. Let’s now move towards the first issue, relating to firm of accountants recommended for the tax planning.

Accountants to Recommend for the Tax Planning

Taxation is one of the most important things and provisions from the viewpoint of the field of accounting, and it is more than important from the viewpoint of the companies to consider the stance of taxation while initiating the accounting matters (Cinnamon & Larsen, 2006). Organizations have to comply with the regulating body standards, specifically pertains to taxation in order to operate effectively in this competitive environment (Charles & Jones, 2007). SEPI Inc is looking for a firm accountant merely to recommend for the tax planning services in order to promote the literature around the wealth management and property (Charles & Jones, 2007). The company is considering that the accountants might pay a commission or would recommend the SEPI Inc.

First of all Rick & Co. LLP has to appraise the importance of the taxation for the company, like SEPI Inc (Charles & Jones, 2007). In order to compete in this environment, it is more than important for the company to comply with all the tax base authorities, because any profit making organization cannot levy from the tax. According to the IESBA and FRC standards of taxation, a firm cannot escape from any sort of tax directly or indirectly applied to them, until and unless, it is subtracted legally from the consideration (Charles & Jones, 2008). In the case of SEPI Inc, the company is expecting the accountants to pay some sort of commission as a tax charge in order to not to take items under auditing which is not at all acceptable from any sort of jurisdiction and regulating services, because every item used in an organization should be under the net of tax accordingly as every asset (tangible) or thing would be buy from physical paper money, hence the amount of tax should be applied on it accordingly (Charles & Jones, 2007).

The accountants, whom the company is intending to hire, must recommend SEPI Inc to should come under the net of tax and should give tax on everything which has been bought through paper money (Charles & Jones, 2007). It is the only way from which the company can prevent itself from all sort of financial frauds and would induce the company in complying with all the economical and non economical regulations and standards.

Major Internal Reorganization Involving in Accounts

SEPI Inc is the organization that deals in property based function and the company is strategizing to a major internal based reorganization merely within the accounting department of the company, from which a sort of committee could be formed that collectively made such a decision or stance from which the company could not present the non audited items in front of the different shareholders and consumers, including government officials and banks.

The company is planning to hire a reliable and discreet accountant on 3 months period in order to get their professional services from their expertise and concrete knowledge. The company is planning to hire the services of the accountants, in order to initiate the tax services and bookkeeping and then they are no longer to retain their employees in the company, because it would increase the financial liability of the company as a whole (Charles & Jones, 2007), The management of SEPI Inc can play its part in this particular scenario, and could apply a sort of recruitment regulation on the company. Apart from the management, Rick & Co. LLP could also initiate the same; in order to regulate the company with the Human Resources based functions and regulations. In a broad nutshell, a company could not fire or terminate an employee with concrete evidence and if the company is planning to terminate an employee, then it must intimate the employee month before (Charles & Jones, 2008).

Pension Fund and Annual Actuarial Valuation

Pension funds would be given to the employees, after they cross a certain age in an organization. Organizations usually bring number of satisfaction and fun for an employee, especially for those employees which are dedicated for the organizations as a whole. Shareholders have a great concern with all of the pension funds of an organization, because it usually deals with high amount of funds in total (Rachev, S.T & Fabozi, 2009).

According to the audited firm, like Rich & Co LLP, all the pension funds must be under the net of taxation and should present accordingly in front of the users of the financial statement, because it has a big relationship with the long run productivity of an organization as a whole. According to the regulatory requirement, SEPI Inc has to promote all the non audit service in front of the audit firm, especially those services which deals in paper money because it would leave some impact on the productivity of an organization as a whole. All the pension funds, are the funds that comes under the ambit of paper money and it should come under the actuarial valuation, which must be under the tax net, merely to comply with the accounting and financial standards.

All the accounting related bodies, like ACCA, IESBA and FRC has identified numerous options and regulatory requirements merely for the pension funds and compels the organizations to initiate such stance from which the pension funds could be taxed accordingly and according to the requirement, because tax evasion and financial misrepresentation is not at all acceptable from any aspect of accounting.

Un-supplied Tax Services

According to the regulatory requirement imposed from the International Financial Reporting Standards regarding taxation is quite restrict (Rachev, S.T & Fabozi, 2009). The acronym of IFRS is International Financial Reporting Standard which is specifically designed as a common and unified language used globally for business affairs, so that the company accounts are understandably and comparatively made across the international boundaries (Charles & Jones, 2007). IFRS are standards that require the companies to adopt them in order to save them from all sort of financial scams and frauds in total. They are consequences of growing international shareholding and trades which are particular important for the companies dealing and operating in different countries of the world (Charles & Jones, 2007).

According to the designed standards and functions, every company has to give certain amount of tax on its profit and revenue. The rate of tax would be applied according to the tax authority laws of the company as a whole. In the case of SEPI Inc, the services pertaining to tax have not been applied accordingly on the company, which is extremely a bad sign from the standpoint of the company as a whole. The company is under the tax liability of 10 Million GBP on the profit of 100 Million GBP, imposing a tax rate of 10%. According to the accounting related committees, like ACCA and FRC, all of the tax should be deducted and must be submitted in the government’s treasury; otherwise the company would be penalized heavily from different angles.

General Accounting Services

Everything has a head header on its head; companies have a head header like Security Exchange Commissions (SECs) while organizations have upper management on its head (Cinnamon & Larsen, 2006). Likewise other things, there is a head header on the accounting standards as well which is International Accounting Standard Board (IASB) (Rachev, S.T & Fabozi, 2009).  The international Accounting Standard Board (IASB) is the independent accounting standard setting body by the IFRS foundations. IASB was founded in the year 2001, as one of the basic successor of the International Accounting Standard Committee (IASC). IASB made specific standards for the companies to use the financial standards according to their line of businesses (Charles & Jones, 2007).

There are number of departments, usually work in an organization and every department is important from the viewpoint of a company as a whole. Among different departments, the name of accounting and finance department is one of them which have its own recognition and importance. According to the specification of this department, all the financial transaction would be initiated and presented among the general public at the end of the fiscal year. Final journal and other important journals of accounting should be placed accordingly in the jurisdiction of the consumers of the company as these things are extremely important from the viewpoint of the company to present its name and goodwill in front of the consumers. SEPI Inc has to initiate the same thing in total and should present all of the financial information including journals to the general public and especially among the shareholders of the company (both internal and external) in order to take and consider different decisions and things for the sake of the company.

Client May Use Another Firm for Internal Audit Purpose

In this scenario, the client of Rich & Co. LLP is SEPI Inc. Rich & CO is providing the annual audit consultation to the company but the company may hire internal auditors and could hire another audit firm in order to strengthen the internal audit function of the company as a whole (Rachev, S.T & Fabozi, 2009). According to the specification of the Accounting requirement and regulations, a company may not hire external or registered accounting or audit firm in order to strengthen the internal audit based function of the company, as it is prohibited in the accounting procedure.

SEPI Inc has to consult instantly with Rich & Co before hiring any of the external auditors merely for the internal audit based functions, otherwise, legal penalties and obligation would arise against the company which may endanger the situation of the company from both economical and non economical viewpoint. By complying these regulations, the company may strengthen its internal audit department with the help of domestic based hiring and initiatives.

Going to Listed on NYSE

SEPI Inc is intending to register in New York Stock Exchange (NYSE) and it is extremely important to register according to the doctrine and regulations. Rich & Co has to apprise the management of the company before the company is going to list at NYSE. The company has to get permission from the government of the state to open its operation in the state accordingly. Apart from that all the tax jurisdiction authorities would be regulated accordingly and the company should comply with all the standards.

Commissionaire Barnier’s Proposal

If the commissionaire to propose to reform in the EU market, then the audit techniques, methods and procedure would not be change as audit things could not be change regardless of companies and countries.

Conclusion

Most of the people regarded accounting and finance as similar things, however the concept underlies in both of these things are totally change from each other. Accounting is the term used to record the day to day transaction occurs in the company while finance is the name of utilizing the funds of the organization at a place from where the likelihood of earning would be high (Rachev, S.T & Fabozi, 2009). Apart from the basic function of both of these subjects, there is another important aspect is adhering and urges the companies to comply with the rules and regulations completely and effectively. Financial reports are the end result of an organization that identifies the main financial position of the company as a whole.

Among number of regulations, the name of International Accounting Standard/ International Financial Reporting Standards and General Accepted Accounting Principle (GAAP) are some of them. While making the financial reports and record the financial transactions, organizations have to ensure that all the things have been adhered with the requirement of the accounting standards. The main theme of this paper, also relates to auditing and it relates to a case study of a company. The main perspective of this assignment is to pen down a report, specifically for the partners of Rich & Co LLP in which all the current and potential non audited services could be identify along with nature of threats. From the entire assignment, it is found that SIPE Inc is in compliance with the regulations made from IASB, ACCA and FRC.

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