Examining The Effectiveness Of Accounting Systems Accounting Essay

The assignment starts with an effort to discover the effective of accounting systems within a business and the research of management control systems of a business.


I used a mixture of primary and extra research solutions to complete this task. I've provided references by the end where necessary and used a number of books and records. Along recover I consulted a few websites, details are on the referrals.


Introduction of accounting

Accounting is all about providing financial and financial information. Accounting information is financial information, it pertains to the financial or financial activities of the business.

Accounting information shows the budget of the business. This is done by the set of accounts, predicated on a system known as double-entry bookkeeping.

One of the first complete paperwork about how precisely to keep books of accounting was written by the teacher of mathematics in Rome Luca Pacioli in 1494. This paperwork described the double-entry system of accounting. It was adopted but still used today surrounding the world.

Users of Accounting: there are two type of users.

F:\Documents\Downloads\ch1_accounting_types_users. gif

http://simplestudies. com/introduction-to-accounting. html

Types of accounting

There are two types of accounting

1: Financial accounting

Financial accounting says us about the budget of Business it is utilized to prepare financial statement. This gives all the fund related information to its users and on the basis of that information a user can do contrast and analyse the positioning of the business and it takes part in important decision making process.

2: Management accounting

On the other hand management accounts deals with the budgeting, business expenses and cost analysis it can be used to make planning and control the business expenses.

Accounting systems

Computerised accounting system

Manual accounting system

These days and nights computerised accounting system is trusted in all kind of businesses. The consequence of this system is far more convenient and correct then manual accounting system.

The question occurs how this technique operates, this system operates by software applications which has to install in the computer. Accounting bundles software's which is employed nowadays it is used to get payroll deals sales ledger purchase ledger and fixed assets. There are lots of accounting software's can be found one of the famous software name is off the shelf software it creates the doc by getting commands by coding this software is very easy to use because of this software we don't need any professional accountant who set up the account it is very convenient to use one of the example of such software is sage which is very common in these days and easy to operate and it creates the accounts information by its do it yourself by coding and another kind of software is named as BESPOKE software from the customised software the majority of the bigger size organisations are using this software. It offers them customised entries in the literature of accounts.


Computer functions on the bases of dose directions to performs its duties for the accounting software coding is used to help make the software simpler to use

e. g. 05 for purchases

15 for interest

25 for income and damage accounts

Untitled sssss. jpg

Manual accounting system

Manual accounting systems are the traditional form of maintaining a business's accounts and information this includes different steps like ledgers cash reserve petty cash publication income statement and balance sheet which include all your day to day trades and sell purchase accounts this accounting system needs skills and knowledge to full fill its requirements.

1. 1 Effectiveness of accounting system in just a business:

Information generated from the accounting system can succeed in decision making process sales and buy of resources and in ventures. Quality and benefits of accounting system is assessed from the performance analysis, inside control and proper data of transactions.

Effectiveness of accounting information is rely upon time management that have a great effect on accounting systems performance, there for the accounting information should be maintain promptly and with reliability of accounting information it have a great effect on the effectiveness of accounting system.

Generally accounting information system supply the information about budget on daily and regular basis the effectiveness of accounting system not only rely after the propose of such system it also depend on the contingency factors ( factors like culture knowledge of organisation and outside atmosphere) accounting information is said to be effective when the info is complete and according to the system users efficiency of accounting system is subject to many studies from a long time.

Accounting information is usually split into two categories (1) the info that facilitate decision making (2) Information that impact decision making.

1. 2: Accounting records

All of the documents and literature includes in the planning of accounting documents includes journal, ledger, trial balance, cash literature, invoices or any report which help in to make accounts.

In accounting files a cycle is employed to create as accounting cycle it decides the steps of financial statement.


F:\Documents\Downloads\accounting-cycle4. jpg

http://basiccollegeaccounting. com/what-is-an-accounting-cycle-and-the-steps-involved/

Purpose and use of accounting files:

All accounting documents are incredibly useful and had a great value because of its respective business with out a proper accounting details it's very difficult to run a business efficiently.

The purpose of maintaining accounting files to evaluate how much capital and investments a business have and also keep up with the records of lenders and debtors or purchasers and sellers by the admiration of that data a user can have a clear eyesight on the business and watch the losses and profits in the business whether the business doing well or not and based on that information business can take decisions whether business have to invest or remove all the assets or run the business as it is these record help to make more accurate and satisfied decision making which help to make business more profit and also used for determining tax liability and give the info to the buyers who are willing to buy the shares of that company.

Accounting concepts

Accounting concepts is very important, it is employed to support the use of the "true and fair view", and accounting has followed certain concepts that assist to ensure that accounting information is shown accurately and consistently.

(1) Going concern: the assumption is that the business entity that accounts are being well prepared is solvent and adjustable, and the business enterprise will continue its businesses for the near future. This has important implications for the valuation of property and liabilities.

(2) Accruals notion: income and expenditures are taken accounts of when they arise and not when the cash is received or paid.

(3) Prudence notion: revenue and profits are contained in the balance sheet only when they are understood and liabilities are included when there is a reasonable 'possibility' of incurring them additionally it is called conservation strategy. Profits aren't recognized until a sales has been completed. In addition, a mindful view is used for future problems and costs of the business enterprise (they can be "provided for" in the accounts" when there's a realistic chance that such costs will be incurred in the future.

(4) Consistency notion: once an entity has chosen an accounting method, it will continue steadily to use the same method, aside from a good reason to change. Any change in the accounting method must be disclosed. Transactions and valuation methods are cared for the same way from yr to season, or period to period. Where accounting policies are improved, companies must disclose this reality and make clear the impact of any change.

(5) Entity concept: accounting information reveal the financial activities of a specific business or company, and not of its owners or employees.

(6) Matching concept: transactions impacting both revenues and expenses should be identified in the same accounting period.

(7) Materiality strategy: relatively modest occurrences may be disregarded, however the major ones should be completely disclosed.

(8) Realization principle: any change in the market value of an asset or responsibility is not named a profit or loss until the advantage is sold or the responsibility is paid off (discharged).

(9) Money way of measuring strategy: accounting process records only those activities that can be expressed in economic conditions (with some exceptions, as with cost-accounting).

(10) Individual entity idea: Business is the independent entity from its owner.

(11)Relevance strategy: Therefore that, to be useful, accounting information must assist a end user to form, confirm or maybe revise a view usually in the context of making a decision (e. g. should I invest, must i lend money to this business? Should I work because of this business?)

1. 3: Factors Influencing Accounting System

There are tons of factors which affect the accounting system the major factor are which have an effect on the company is the (1) nature of business and (2)size of company and 3the composition of the business if the organization is a multinational company then the accounting system of that organisation is on an extremely high level and very complex and they have separate division for all your accounting related work if a little company heading to increase its size then they should have to improve the accounting method and choose the new method because of massive amount transactions are also occurred available on which the old method can't apply, and the other factor which influence the accounting system the change in IAS if in IAS some new rules are coming in then your business have to adopt that guideline and adopt available and make there strategy relating to it.

2. 1: Business risk:

Business risk can't be removed but must be been able by companies. There are several ways to minimize the business risk by proper planning.

Determining Business Risk: Expanding the Business Risk Model

It is important for an organization to identify the business risks which exist in the environment in which it operates. To identify those hazards, organizations must take a look at their external environments. External business risks are economic, political, social, environmental, technical, and other exterior conditions.

An group cannot fully understand its business dangers unless it also comprehends its business goals, strategies, and functions.

Interrelationships between business targets, strategies, techniques, and business risk

http://www. clir. org/pubs/reports/pub90/appendix1. html

Types of risk:

Operational dangers:

Operational hazards are associated with your business' operational and administrative steps. These include:


supply chain


accounting controls

IT systems


board composition

Business should consider these operations, prioritise the potential risks and make necessary procedures.

Financial Risk:

Financial risk is the chance made by collateral holders by using of companies debt. If the business increases capital by borrowing money, I t must pay back with the eye charges. This escalates the degree of doubt about the business and it must have enough income to repay that amount in the future

Compliance risk:

Compliance risk is the likelihood that the business will not adhere to regulations in the jurisdictions where it functions or that the organization will break any officially deal. Noncompliance can be dangerous, or it can result from being unaware or local legal requirements.

Response to risk:

A business may take any given risk.

Accept risk: if the chance of damage is bare minimum then only admit the risk and carry on business matching to it.

Reduce risk: lowering the chance by better planning and strategies

Avoid risk: do not enter that kind of business in which there is certainly some bigger risk

Transfer risk: companies can also copy the risk by using insurance policy.

2. 2: Describe and evaluate the control system

The environment where business operates and the machine it adopts is a process, influenced by an entity's plank of directors, management and other staff, made to provide confidence regarding to the success of objectives in the following areas:

effectiveness and efficiency of procedures,

reliability of financial reporting, and

Compliance with applicable laws and regulations.

IAS315 offers us a knowledge of the entity and its environment and evaluating the risk of business and control system of business.

ISA identify the five elements of control system,

The control environment

Risk assessment

Information and communication

Control activities


Control environment:

Control environment is the fact where control system performs. Control environment is described by the business enterprise management. Control environment creating basics for control activities, risk evaluation, monitoring, recognition and action of these modified with governance and management. The control environment is the most crucial component because it sets the build for the business. Factors of the control environment include employees' integrity, the organization's determination to competence, management's idea and operating style, and the interest and path of the plank of directors and its own audit committee.

Risk diagnosis:

Risk diagnosis analyse the id, research, and management of doubt running a business facing the business. Risk assessment is relevant to the financial reporting and corporation operational objectives. The management have to handle a risk analysis from auditor which provides information with confidence that company system won't have any problem in them.

Information system:

Information system is the system that processes the info within an organization it includes processing the info and the task to initiate record and record on financial record both manual and computerised.

Control activities:

Control activities include the policies and procedures maintained by the management of an organization to find risk. E. g. Control activity is a policy requiring the authorization by the mother board of directors for many acquisitions exceeded from an estimating amount. Control activities are the important component of inner control, this provide satisfaction to prevent wrong decision from developing.


Monitoring refers to the diagnosis of the quality of inner control. Monitoring activities provide information about potential and actual breakdowns in a control system that will make it difficult for an organization to attain its goals.

2. 3: Fraud

Fraud is an intentional mistake by the management, utilizes or third celebrations for against the law financial advantages. Or if we speak about an error it's an unintentional blunder.

Fraud is difficult to be determining because it is performed by complete planning and attention so the inside audit is perform to identify the fraudulence.



The distinguishing factor between fraudulence and error is that action which results in a misstatement of the financial claims it is intentional or unintentional. The word 'fraudulence' is a broad legal concept, however the auditor is concerned with fraud that causes a material fault in the financial claims. ISA 240 (Redrafted) defines scam as: 'An intentional work by a number of individuals among management, those costed with governance, employees, or third functions, relating to the use of deception to acquire an unjust or against the law advantage. And

"SAS 99 defines fraudulence as an intentional action that results in a materials misstatement in financial claims"

http://en. wikipedia. org/wiki/Statement_on_Auditing_Standards_No. _99:_Factor_of_Fraud

Types of scams:

There are various kinds of fraud which relates to a business.

Ghost employ

Miscasting of payrolls,

Stealing unclaimed pay,

Collusion exterior parties

Teeming and leading

Altering cheques and inflating charge claim

Stealing assets

Issuing bogus creditor notes

Failing to track record all sales

Prevention of Scams:

Fraud is protecting against by implementing the rules and laws available a few of the factors are written below which is very helpful for the business to prevent the business enterprise from scam.

A good interior control system

Continuous supervision of all employees

Surprise audit visits

Through personal procedure

Detection of scams available:

Maintaining key control procedure reduce the threat of fraud developing and escalates the risk of diagnosis control over cash transaction are more important this is the primary area in which generally frauds are happen.

Cash receipts:

Keep attention on all trades which are positioning available. Divide the obligations between different functions, quite simply greater than a person. There are following point which is very helpful to identify the scam.

Receipts by post:

Safeguard to avoid interception of email between receipts and opening.

Appoint person to supervise mails

Protection of cash and cheques

Control over cash sales and collection:

Restriction of receipts received


Clearance of cash official and register

Investigation of cash storage area and surpluses

Paying into bank

Daily banking

Make up and comparability of paying in slips and receipts

Banking receipts record

Condition and happenings:

Particular financial reporting pressure within an entity;

Inadequate working capital due to declining profit or too quick expansion

Increases sales on credit this area should be check to find out if anything is going wrong is the fact department.

Unusual purchase:

If unusual exchange is take place especially at time end that give's any significant effect on earnings.

Complex transfer or accounting treatment.

Task 3

3. 1: Auditors

Duties, rights and responsibility;

What is an audit?

An audit is an examination of a company's financial assertions prepared by the directors of the business. Its purpose is to provide the company shareholders an unbiased, professional and knowledgeable thoughts and opinions on the financial claims:

It's been prepared according to the Companies Acts, any other relevant legislation and relevant accounting criteria.

It gives a genuine and fair view of the health of the company on financial statement.

Who is an auditor?

An auditor can be an independent professional one who is certified to audit a company's financial statements.

What does an audit involve?

In carrying out an audit, an auditor will usually:

Identify the info of the financial claims which have some mistakes.

check the trades record, account amounts and disclosures.

Give recommendations on company's accounting regulations are affordable.

Test that the company's internal controls are effective.

write management letter if any problems learned through the audit and suggest on how to cope with that.

write and concern the auditor's report to the users of the company.

What are the responsibilities of auditors?

Duty to offer an audit report:

The main obligation of auditors is to are accountable to the shareholders on whether in their view the business's financial statements provide a true and fair view. They could give:

A professional judgment - this says that the financial assertions give a true and fair view of the company's situation except for certain mentioned circumstances.

A disclaimer of judgment - this shows that the auditor is unable to give an thoughts and opinions if the financial statements provides true and fair view or not.

A detrimental thoughts and opinions - it says that the financial claims do not provide a true and reasonable view.

What are the privileges of auditors?

Auditors contain the right to:

Gain access to the catalogs and accounts of the company and its subsidiaries;

Gain access to information and explanations from the business's directors and employees.

be notified of company general meetings and addresses the conferences.

explain in general meeting the circumstances of any condition to eliminate them as auditor.

Liabilities of auditor:

Give a true and fair take on financial record and deliver the right information to the general public and shareholders to prevent them from loss

3. 2: Internal and exterior audit:

The Exterior Auditor:

the exterior auditor testing the deals record that participates the financial statements.

The interior Auditor:

The internal auditor, on the other side, deals with its major functions, risk management and inner controls.

The Main Differences

There a wide range of key dissimilarities between inside and external audit.

The exterior auditor is an external service provider how will not is one of the organization, company work with the he auditor for auditing companies. The external auditor seeks to provide an opinion on if the accounts show a genuine and fair view.

Whereas internal audit varieties an judgment on the adequacy and efficiency of systems of risk management and internal control, a lot of which are beyond your main accounting systems.

The 3 Key Models of Business Activities Involves Internal and Alternative Audit

3 Key Types of Organization Activities will involve Internal Vs Alternative Auditor

http://accounting-financial-tax. com/2008/08/differences-and-similarities-of-internal-auditor-v-external-auditor/

Here is a list of "Internal Audit Versus External Audit "in detail:

Internal Auditor Vs Alternative Auditor

http://accounting-financial-tax. com/2008/08/differences-and-similarities-of-internal-auditor-v-external-auditor/

3. 3: Planning of auditing

In auditing of any organisation, auditor must consider certain things before audit.

First is scope

In any audit ought to be to determine its range and the auditor's basic approach.

Audit strategy:

Auditor must make some strategy for the auditing and place it with auditing documents which defines the major areas which auditor must take extra care and attention and the down sides associate with audit and the auditing clients details of concerns.

Documents accounting system:

Auditor must collect all those documents associated with audit e. g. financial record, deals record, receipts, and other related documents. Auditor need these documents to analyse it and discover all the areas of transactions to determine whether the financial record have any error or not or is there any probability of fraud will there be or not and whether it gives a genuine and fair view or not.

System and inner controls:

At this level the objective is to determine the move of documents and the facts related to the documents and the operational system in the company. At this level auditor must find the facts related to documents and the documents circulation in the departments including sales, purchases, cash and stock and accounts personal. This is the good way to determine the rough estimate of system, from then on which will be changed into formal record.

Audit Risk:

Just like risks in business some hazards are also relates with the auditing.

Audit risk is defined as:

"Audit risk is the chance that that auditor may give an inappropriate thoughts and opinions on the financial record"

Components of audit risk:

Audit risk has three components:

Inherent risk:

Inherent risk is the chance that auditor may be misstated because of lack of knowledge and insufficient information designed for it. Auditor must use their professional practice and available understanding of that to asses' inherent risk if no such information can be obtained then the inherent risk is high.

Control risk:

Control risk is the chance that company control system does not detect the material misstatement. And the financial record do not put together according to the IAS.

Detection risk:

Detection risk is the chance that auditor will fail to detect the material misstatement of accounting system. Recognition risk relates to the data, practice and the knowledge of the auditor.


Materiality is relates to the financial statement, it is an manifestation of the relative importance of a particular matter on the mean of financial statement as a whole or as a person. A subject is material if its omission or misstatement could impact the economic decision of the users which basis on that financial statement. Materiality depends upon the size businesses of corporation.

ISA 320 instructs the auditor to consider materiality and its relationship with risk during doing an audit.

3. 4: Audit trials and uses

In expanding overall audit plan, auditors uses five types of audit lab tests to learn whether financial record are truly explained or not.

Procedures to Obtain an Understanding

Auditors perform this by something called walkthrough to obtain understanding it can be applied on the trades and entire process is operated like this.

Tests of Controls

procedure used to obtaining a knowledge about internal control, it contains followings evidences

Make inquires of consumer personal

Examine documents, records and reports

Observe control activities

Reform client procedure

Test of Control is employed to determine if the control system is effective or not and usually will involve a screening of transfer.

Substantive Tests of Transactions

Procedures made to test for dollars misstatements of financial statement balances.

Analytical Procedures

To point out possible misstatements

To reduce lab tests of details of balances

Tests of Information on Balances

Focus on stopping G/L balances

It is employed to find out whether the balance of the financial record is appropriate.

3. 5 Records Auditing process

AuditProcessFlowchart. gif

http://www. window. state. tx. us/taxinfo/audit/auditfun/5procedures. htm

Audit test:

In the top company with superior inside control and low inherent risk therefore auditor perform intensive ensure that you it relies on the client inside control to reduce substitutive test due to emphasis on test of control and analytical treatment, this audit can be done comparable in inexpensive. This audit likely presents the mixture of evidences used in designed audit of general population company financial assertions and inner control over financial reporting.


4. 1: Reason for Audit Report

Audit report is that report in which external auditor share their view about the true and good view of the financial record of the organisation.

The audit record is posted for the shareholders, management or directors and also for public. There are two key dissimilarities between the are accountable to shareholders also to survey for the management.

The shareholders statement is showing whether the financial record shows a genuine and good view

And the private survey for the management and directors that have comments and recommendations on the financial statement

Contents of audit statement:

Auditor record on financial record contains clear thoughts and opinions based on the evaluation of record. Audit record draw on the complete pattern which gives the clear view to its users. The main contents of audit statement as follow.

Untitled details. JPG

4. 2: Different certification in survey:

There are two types of studies you are unqualified or unmodified report and the second is qualified or changed report.

1: An unqualified audit article gives guarantee to its users and provides true and fair of the financial record and there is no material mistakes are in it. An unqualified survey extract by regulations and guideline under companies action 1985. Which contain followings?

Proper accounting records

All information and explanations

Details of director's benefits

Particulars of loans and other transactions

2: Qualified article:

On the competent record auditor give two types of ideas.

Matters that influence the auditor's opinion

Matter that not influence the auditor's opinion

Matters that have an impact on the auditor's opinion

Auditor may well not be give appropriate thoughts and opinions because of some circumstances like insufficient material of financial record. And more factors are as follow.

There is any limitation of range in auditors work. It might be materials or pervasive

Disagreement with management it could be material or pervasive

These two factors farther split into two branches.

A limitation of scope can lead to disclaimer of opinion. A disclaimer opinion should be indicated when the restriction of opportunity is so material or pervasive when auditor do not obtain any data related compared to that to express his thoughts and opinions on the financial statement.

Disagreement may causes adverse opinion. It ought to be expressed when effect of disagreement is material and pervasive when some misleading or incomplete information in the financial statement.

Matters that do not have an effect on the auditor's opinion

In some circumstances auditor may give unqualified opinion as a result of uncompleted information in the financial record in this case auditor write a paragraph is called as emphasis of matter describing a fundamental doubt and then give an view on that.

4. 3: Management notice:


The Mother board of Directors, ABC & CO

Alpha Co Small, certified accountants

15 Essex Road 29 High Street,

London, EC1N 2HB London, E15 5SG

1 Apr 200X

Members of the plank,

Financial assertion for the year ended 31 May 200X

In accordance with this normal practice we lay out certain matters which arose consequently of our overview of the accounting system and process operated from your company during our recent interim audit.

We would explain that matters handled in this notice came to our notice during the conduct of our normal audit treatment which are designed to expressing our opinion on the financial record of your enterprise in outcome our work didn't encompass an in depth view of all aspects of the system and can't be relied to necessarily to reveal defalcation or other irregularities or even to include all possible improvement in interior control.

1: Acquisitions system: debit control

Present system

During the assessment in our work we find that the products purchases from company ABC on 1 MAR 200X order orally it do not contain any purchase receipts or purchase accounts.


There is a probability of over repayment or responsibility being setup.


We advise that the purchase section is sensible of such order of course, if the order is purchase orally then the official permission should be obtain as conformation.

2: Dividend pays bank account: Shareholder account

Present system

We asses that the dividend pay to the shareholder of the entire year 2010 doesn't have any entry in the

Balance sheet


It will lead to show more balance in the profit and chances to pay double to the shareholders


We recommend that the accounts department is accountable for such issues so when the dividend is gives to the shareholders complete the accessibility to balance sheet after the profi and damage accounts planning.

3: admin Expenses: charge account

Present system

During our audit check we found that there are no proper records of admin expenses


It will lead to more expenditures in admin and any make use of may take any amount from company accounts which really is a loss for the business.


We advise that this is the responsibility of the accounts division in this area accountable person should be appointed who have the power to issue the cash for the admin.

Our reviews have been talked about with your fund department and the principle accountant and these things consider by us again during further audit. We live happy to acquire responses on or details made. In the event that you require any further information please do not be reluctant to contact around.

This notice has been produce for the only real use of your company. It must be not talked about with third party. No responsibility if it assumed by us to anybody.

We like to say thanking to your personnel for their co-operation and support during audit.

Yours faithfully,

ABC & Co


This assignment the bottom line is has helped me know very well what various types of accounting systems are in a business and how factors like characteristics and size of a business changes the way auditing is performed in each business.

Along with that, they have given me a good understanding of the types of risks involved in a business and how they can be reduced by proper auditing bank checks, etc. Finally, it elaborated how to actually write an audit record, what are the contents we need to follow and how effective it is.

  • More than 7,000 students prefer us to work on their projects
  • 90% of customers trust us with more than 5 assignments
submit a project

Latest posts

Read more informative topics on our blog
Shiseido Company Limited Is A Japanese Makeup Company Marketing Essay
Marketing Strength: Among the main talents of Shiseido is its high quality products. To be able to satisfy customers, the company invested a great deal...
Fail To Plan You Plan To Fail Management Essay
Management This report will concentrate on two aspects of project management, their importance within the overall project management process. The report...
Role of High-protein Diet in Weight Management
Nursing Structured Representation: Probably one of the most wide-spread and popular problems on earth is the weight problems that people is suffering...
Waste To Prosperity Program Environmental Sciences Essay
Environmental Sciences Urban and rural regions of India produce very much garbage daily and hurting by various kinds of pollutions which are increasing...
Environmental Studies Pollution Introduction Many people across the world can remember having walked on the street and seen smoke cigars in the air or...
Soft System Methodology
Information Technology Andrzej Werner Soft System Methodology can be described as a 7-step process aimed to help provide a solution to true to life...
Strategic and Coherent methods to Recruiting management
Business Traditionally HRM has been regarded as the tactical and coherent method of the management of the organizations most appreciated assets - the...
Religious Healthcare Organisation
Health Religious Health Care Introduction I help the firm of consulting. Spiritual HEALTHCARE of Middleville community have appointed us to identify and...
Enterprise Rent AN AUTOMOBILE Case Analysis Business Essay
Commerce With a massive network of over 6,000 local rental locations and 850,000 automobiles, Organization Rent-A-Car is the greatest rental car company...
Check the price
for your project
we accept
Money back
100% quality