Accurate Accounting Statements example essay topic
Even if the government doesn't know how to regulate accounting, many observers think that mandating more disclosure will help investors discover fraud on their own. Unfortunately, investors do not know how to evaluate the "transparent" data. Only a tiny proportion of ordinary investors actually reads a company's financial statements before buying the stock. A smaller number understand what they are looking at. The average investor is not inclined to engage in detailed analysis, nor is he capable of it. Those who are trained in financial statement analysis already do it, and more rules will not help them.
In accounting systems, certain controls are needed to ensure that employees are doing their jobs properly and ensure that the system runs properly. These checks are in the best interest of the organization. These controls come in the form of internal and external controls for the system. The internal controls are the checks that are placed in the system by the company's own management and directors. Today more and more companies are moving from the manual accounting systems to computerized accounting information systems. The advantages of a computerized system are increases in the speed and accuracy of processing accounting information.
Since government decisions are not motivated by profits, there is no motivation to provide accurate accounting statements. In fact, bureaucrats have an incentive to hide the costs of their agencies. An accurate accounting of an agency's activities would generate demands for reform. Wasteful spending could be discerned more easily. Congress could spot politically acceptable spending cuts, given accurate information. It's in the bureaucrat's interest to distort his agency's financial picture.
This allows him to demand greater funding. An accurate accounting would only lead to funding reductions. No bureaucrat wants this. Therefore, we should expect agencies to have unsatisfactory accounting practices..