Auditing

Auditing basically means doing an inspection of a particular firm according to the law of audit. The overall job of auditing is to make sure that how exactly the company is performing because their duty is to look after things like financial statements, safety measures, to check for frauds, and to judge an overall performance of an organization. As mentioned before about financial statements, the auditors are more concern of that thing exactly, so it is very compulsory for an organization to look after their financial statements and balance sheets.

How Auditing is being done?

Auditing is being done through some laws of their own and if we look regarding accounting perspective they have their own rules called International Standard Of Auditing (ISA) there are some standards which are being followed. These rules and regulations are being issued by International Federation of Accountants (IFAC). Auditor is the person who actually does the auditing of the company they are responsible for tasks like internal control of the company, planning of an auditing, collection of evidence, and making of an audit report. Talking about financial audit, an auditor verifies the financial information of an organization then the auditors gives his own opinion regarding the financial information provided by the organization. The opinion of an auditor is based on reasonable assurance not absolute assurance because in reasonable assurance and auditor actually attach his opinion in front of companys financial statements stating that the company is using generally acceptable accounting principles. The absolute opinion can only be seen in final auditor report because it is being done through a formal procedure, a whole companys inspection is being done. The main objective of auditing is to persuade companies to maintain their financial statements so that there could be no misstatements and manipulations.

How does it affect business performance?

The business gets affected in two ways, first is this that if the company fairly maintains its financial statements then it shows an improved financial position of the company and it also increases the companys goodwill. If a company has a good reputation then more investors would like to invest in that company, more banks would like to give loans on time, more suppliers would like you to give discounts, and last but not the least the customers would be very much attracted towards that company. The opposite affects would be like this, that there would be no one who will be interested in this particular firm to invest, to buy, and to give away any loan to this company. Bad reputation will force that company to shut down.

Window dressing
Window dressing is basically a term used in accounting for manipulations. It is being used to hide the actual financial information of the company this is more often being called fraud, but this is what it is all about, to improve the current scenario of the company, to improve the financial position of the company before showing it to the shareholders. The company sells its stock in to large losses and buys it from a high flying stock at the end of every quarter.

Why do firms Window Dress?

Firms window dress due the following reasons:

They dont want to lose their investors support. They want the value of their stocks to be increased in the stock market to attract more stockholders and investors. They want to increase the credibility of the company. They want to increase the goodwill of the company in the market. They want to look strong enough in front of their competitors. They know by doing this More companies would like to deal with us. They dont want to lose the institutional support. They want to their credit ratings to be improved because they know that creditors are motivated by good liquidity support.

How does it affect the business performance?

Window dressing is being done to improve the financial positions of the company and the reasons of doing these are being discussed above. There are many advantages of window dressing, but the negative effects could be very threatening for an organization. if in any case the company gets caught by auditors then there are higher chances of the cancellation of their license because auditors check their financial statements and if any manipulations or misstatements are being found then there is a penalty for that, these things are considered risky for firms because by these things they will lose their goodwill in the market and no investor would like to invest in that company because of bad credibility no one will be interested, sooner or later company might be forced to shut down.

Managerial accounting
Managerial accounting is used for the management of the company as the managerial accountants records the financial information of the company for their management team and then the management team studies that information and then make strategies according to that this helps them in decision making process, the accountants also collects the data and make significant reports as well for the management team. The organization is very much benefited from the managerial accountants as they provide sufficient information for the company.

Why companies use managerial accounting and how does it affects business?
The company uses managerial accounting for various reasons, but there are three main reasons why company uses this method of accounting to improve their strategies. In decision making process the management team actually determines whether which product to produce that is profitable and which price to charge to customers that is cost effective for the firm. While manufacturing a product, a company tries to decrease their cost as much as they can, but the analysis of this costing of variable and fixed is being done by these managerial accountants through which a decision making process becomes very easy for the management team to take decision. In forecasting and planning the managers tends to plan for their present and future, they want to know that which products are best for their company now and what products could be best for their company in near future. They want to know that how they should utilize their resources according to the given budget. The decision making process of forecasting and planning completely depends on budgeting which will be done by managerial accountants without this the managers of the company cannot take any decisions and cannot make any future predictions. Last factor which affects is budgeting, in budgeting the managerial accountants makes the whole budgeting plan for the company and also it makes the most efficient plan for the needy departments who can utilize the resources more effectively and reducing and eliminating those who cannot. The budgeting plan plays very important role in a company as it also tells us how much profit we could earn and how much cost we can incur and how much can we save which could go as reserves for the company.

Financial Statements
Financial statements are a statement which shows you exact amounts of sales, purchases, expenses and net income. The balance sheet on the other hand shows you the assets, liabilities and equities of the business and the cash flow statement shows you the amount of money coming in to the business and the amount of money going out of the business it actually tells you the inflows and outflows of the cash. These all statements shows the financial positions of the company if the financial position is good then the company is most likely to attract investors and shareholders in to the business.

The impact of financial statements in the market?

The impact of financial statements in the market could be from various reasons some of them are as follows: Stock price is being impacted a lot from financial statements because lots of investors who are willing to make an investment in to the company usually looks at the financial statements of the company if the financial position is strong enough then the stock price would definitely go up and investor would most likely to invest in to the company if not then the investor would not invest because it is all about the return which the investor usually thinks about, the rate of return is a very important factor for any investor who is making an investment in any firm. Financial statements also helps businesses to easily get loan in their hard times because every creditor would see the credibility and financial statement of that firm, if the financial position is well enough then only a lender would step ahead to contribute something to the company otherwise not. No lender would risk their money in that firm whose financial position is not strong enough to return the money. If we talk in terms of attracting new investors, the financial statement plays an important role in it because investors usually examine the financial statements which are being released by companies in to the markets, the investors in fact insert those financial ratios also to know the rate of return which they would bet getting after investing in to the company, so if your financial condition is well enough the investor would definitely invest in your company and if your financial condition is not good very few investor would likely to invest in your company. An organization should also maintain their financial information for the auditing purpose as well because auditors usually comes to inspect a company at any time, so it is very important for a company to keep a balance check at each every step. This would definitely be very useful for a company because by this a company could prevent itself from misstatement and mistakes.

Impact of accounting information system.

Accounting information system is basically used for collecting data regarding financial information. AIS actually record those financial data which could be further used by the management team of the company usually called the decision-makers of the company they make decisions according to that financial information, so that it could be used for their future predictions like planning, it usually shows us the exact budgeting done by the company with almost no errors.

How Does it affects the business performance?

Accounting information system affects the business performance in various ways some of them are as follows: As mentioned in the research paper that Spain, this country needed to invest highly on AIS because of the globalization which was taking place in terms of marketing, accounting and advertising. They needed to take this step and this investment which they made did not wasted, but it actually enable themselves to face their foreign competitors and they also realized that these computerized accounting tools allowed their companies to show better results and to make better relations with their suppliers and customers, they also realized that these methods are even less time consuming than manual accounting methods they have fastened their tax management system. It is so true that accounting information system has made accounting very flexible in terms of recording every transactions which could be used internally and externally, by internally we mean that it could be used within the company by their management team and externally it could be used by investors who wants to invest in the company and by auditors who wants to inspect the financial information. As it is mentioned in the research paper that initially the investment on AIS was very expensive as there was no scope of such computerized accounting before, so the initial step was very difficult, but after it was being introduced it started showing excellent results and easiness in
recording each and every financial information. It helps companies to show them exact information with no errors and it suddenly increased the productivity of the company. As there was no culture before for adopting computerized accounting methods, then eventually the culture started to introduce AIS in companies.

References:
http://en.wikipedia.org/wiki/Financial_audit http://pcaobus.org/standards/auditing/pages/default.aspx http://en.wikipedia.org/wiki/Audit

http://www.investopedia.com/terms/w/windowdressing.asp http://www.google.com.pk/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=9&ved=0CGMQ FjAI&url=http%3A%2F%2F91.198.29.68%2Feng%2Fwindow_dressing.pdf&ei=tihgUu6LC8fDhA fF74CACA&usg=AFQjCNFShazx_ZlcsGODGdprWS_vH1nsSg http://smallbusiness.chron.com/managerial-accountants-role-business-planning-38322.html http://highered.mcgrawhill.com/sites/0072996501/student_view0/ebook/chapter1/chbody3/accounting_systems.html http://en.wikipedia.org/wiki/Management_accounting http://smallbusiness.chron.com/impact-financial-statements-23794.html http://en.wikipedia.org/wiki/Financial_statement http://en.wikipedia.org/wiki/Accounting_information_system ASARO, P. M. (2000): Transforming society by transforming technology: the science and politics of participatory design, Accounting Management and Information Technologies, vol. 10: 257-290. http://dx.doi.org/10.1016/S0959-8022(00)00004-7 BADESCU, M.; GARCS-AYERBE, C. (2009): The impact of information technologies on firm productivity: Empirical evidence from Spain, Technovation, vol. 29: 122-129. http://dx.doi.org/10.1016/j.technovation.2008.07.005

Abstract. In this research we have dicussed different factors of accounting which affects the business performance, each and every factor plays a vital role in affecting the business. The emphasis has been made on auditing that how auditing has been done and how do they check every financial data of the company, how managerial accounting solve companys budgeting plan and on the basis of that they decide what to do next, why do companies windowdress, why financial statements are very necessary for the business and how does accounting information system has been adobted in todays culture and why it has been adobted and why it is less time consuming.

Cost Accounting Assignment #1. Submitted to: Sir Danish Iqbal. Submitted by: Javed Dawoodani. Class: 3E.