Accounting Information Systems Accounting Masters Program

¶ … agree with accountant B's philosophy in regards to oversight and auditing. Accountant B. expressed concerns regarding timely and effective systems control. These controls are very important in regards to business operations. In addition, tight system controls have implications for society at large. This is particularly true for institutions that are vital to the global and domestic economic health of society. Accountant A seems to favor the ability of accountant to discover mistakes after they have occurred. I believe accountant A has errors in his logic in regards to accounting.

This is particularly true because inventory recognition directly impacts the firms financial statements and balance sheet (Friedlob, 1996) In many instances, society depends, in large part, on the accuracy and confidence of accounting information. The financial markets, in particular, depend heavily on the trust and confidence of financial information. Accountant A seems to believe that society has benefited from his firm realizing the business error. To a certain extent, he is indeed correct. However, due to this error, confidence in the CBU's inventory and financial statements has been eroded.

This has extreme implications on the firm overall. For one, its stock price may decline as investors have lost confidence in both the accounting firm auditing the financial statements as well as the business overall (Singh, 1999). The lower stock price may have grave consequences for the firm as moral may decline. In addition, insiders within the company, due to the negative sentiments regarding the company, may depart to competing firms. The departure of key executives will cause still further decline in the stock price, as the cycle continues.

As such, accountants must be proactive in regards to their duties and responsibilities to the investing public, the corporations that hire them, and society at large. Finding an error after the fact is beneficial, however, it pails in comparison to a more proactive approach to accounting. Accountant B, on the other hand, believes system controls will allow accountants to be more proactive in regards to their overall inventory account. I agree with accountant B. primarily because system controls provide a means of preventing errors from occurring in the first place.

It allows both the accounting firm and the business to more proactive rather than reactive to inventory concerns and considerations. The proactive nature allows investors and other stakeholders to remain confident in the overall business operations of the firm. It also allows management to stay in touch with inventory levels and adjust business operation accordingly. To avoid these occurrences from happening again, tight inventory controls should be implemented. In addition top level management must be held accountable for these inventory levels, with incentives directly linked to behaviors.

In this way, management will act in the best interests of the company (Goodyear, 1913). Agency Theory, contracting costs, and firm value are all relevant issue pertaining to the case. Agency theory, contracting costs, and firm value are all predicated on aligning incentives with benefits. This alignment creates an atmosphere where all stakeholder groups have a vested interest in the company. Contracting theory for example pertains to issue of executive compensation and aligning incentives to maximize the WHK shareholder wealth.

Agency theory pertains the relationship (or lack thereof) between an individual and those that.