Financial Accounting Concepts Financial Statements (Regulatory Oversight)

Financial Accounting

Accounting Concepts

Financial Statements (Regulatory oversight)

The rapid failure and bankruptcy of Enron has prompted severe criticism of the nation's financial reporting and auditing systems, which are fundamental to maintaining investor confidence in U.S. capital markets; there are four areas in which the Enron failure revealed serious problems: corporate governance, the independent audit of financial statements, oversight of the accounting profession, and accounting and financial reporting issues (GAO, 2002). The financial statements are the frontline in determining a company's integrity and accountability. When a company makes its financial statements public, then they can be scrutinized by many external entities to be used in the market.

However, before financial statements are made public, they should be examined by an external auditor. Auditing is one of the most essential functions in the entire accounting business function and mistakes made in accounting can cost an organization everything. Therefore the auditing process serves as the last line of defense against costly mistakes and one most important part of the accounting processes. Since organizations are prone to making mistakes on a regular basis, there have to be effective controls used to ensure that the organization is protected from these errors. Thus an audit can be the defense that ensures that the records are accurate and that organizational processes are running appropriately.

- Product Costing Methods (Job Order, Process and ABC)

The job order costing model, also called the cost plus modes, is popular because of its simplicity but it is being replaced by newer costing models that consider more variables than just cost plus profits. However, this model remains popular and there are a substantial number of firms and there seems to be no significant positive relationship between the firms size and the use of cost-plus pricing (Guilding, et al., 2005). The company basically finds out how much the product or services costs them and then adds a margin to account for the profit that they would like to make.

Process costing, on the other hand, takes the averages of what many individual products take to produce and the processes that are used; this can also be referred to as standard costing. Since the standardized costs are based on averages, then the actual costs are usually somewhat off; at least by a small margin. To account for this variance a separate account must be set-up to handle the account difference between the standard cost and the actual cost known as the cost variance.