C) The new management is becoming very aggressive with the adoption new accounting policies and financial reporting. The management is starting to take greater risk and adopt new revenue recognition policies. They believed the previous year’s policies were too conservative and inappropriate. The new management is placing higher priority on short-term performance rather than long term. The reason behind these major changes is due to the excessive pressure on management.
Everyone in the management knows that they have to show an increase in the profit of the organization, or they will also lose their jobs, just like the previous management. Thus they are adopting various new accounting policies and are concentrating heavily on the short term results. This may make the company look good from the externally for a short term. However it is very likely that the numbers on the financial statement are not be accurate. The short term success of the company does not help them internally, there are many things that the new management is changing that may not be healthy for the company.
The new management also indicated that the past process of determining the accounting estimates were “overly Conservative” a new method of accounting estimating is being introduced. The new method of the accounting estimates will also affect the financial statements, because it will most like overstates assets and understate the liabilities. Thus achieving the short-term goals of the management. The company’s accounting functions are decentralized, and the operating management does not sign off the reported results, they are reviewed by the CFO and CEO before being released.
The needs to be changed, the reports should be signed off by the operating management because they are closer to the operations of the company. They have the knowledge and the expertise of that part of the company, the CFO and CEO are at the top they may not be able to understand what the numbers on the reports mean. The operating management can read the reports more precisely as they are the ones who are working in that particular area, it is easier for them to catch errors and frauds.
The employees that prepare the statements may be overstating the numbers on the reports to show that they are achieving the required performance levels. e) The organization has great controls over the segregation of employee duties. Authority and responsibilities are assigned in a “formal, written manner”. Employees are aware of what their daily duties are and they understand their responsibilities. The company even has written job descriptions for employees and their supervisors, and these job descriptions contain specific instructions related to controls and responsibilities.
The company has given significant amounts of authority to the supervisors, so they can monitor the day to day activates of the employees and make sure they are following the company policies. The organization also does a good job making sure that the supervisors do not overstep their reasonable boundaries. This is done by giving different level employees different type of authorities. Thus the organization has successfully distributed adequate amount of responsibilities to their employees and management.
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