Financial Reporting Council is responsible for regular and high quality reporting to the investors as well as maintaining a regulatory environment. The aim of the council is to provide high quality financial reports which will suit the needs of the readers and answer all possible questions of the investors. The Committee is supported by three standard committees which include the Codes and Standards Committee, the Executive Committee and the Conduct Committee. These combine and work together for the achievement of the goal of the Financial Reporting Council which aims to maintain an environment where high quality reporting is carried out and a secure environment for investment exists.
This Council overlooks the accounting, auditing as well as the actuary profession, because each of them needs to follow the quality standards of reporting. The Board aims to provide assurance that all the financial reporting bodies are following the standards and ensure discipline among the professionals. The Board not only overlooks the professionals and the reporting standards, but also a separate Audit Inspection Unit which looks into different auditing organizations, and makes recommendations for regulatory actions.
The aim of the council is to set codes and standards for auditing, accounting and governance. It also looks into matters of corporate governance and actuarial work. In addition to it, the council investigates into matters which concern misconduct of professionals. There have been many instances where manipulation of accounts has taken place, due to this the companies run into bankruptcy and close down. Such a situation leads to a loss to the economy as well as to investors who put faith in the professionals reporting the financials of the company as well as the ones running the company. Due to such conditions, a need for a financial reporting council arises which aims to look into matters which relate to misappropriation of accounts, and work for the security of the investors.
The council aims to ensure that the professionals, who look into the matter and provide the results of the same, are genuine and true to their work. The professionals who audit the financial statements are supposed to provide information which is true and correct; there should not be manipulation or any window dressing on the facts. The council looks into the matters which are relevant for the disclosure of financial statements. Its purpose is to ensure true and genuine information is mentioned in the statements and nothing is manipulated. It also ensures that the accounting standards are followed and nothing is reported out of line.
The financial statements of a company include income statement, balance sheet, a shareholder’s equity statement and cash flow. The financial information of the company should be presented in them as and how it is. The investors are interested in these statements because it tells you how the company is faring and about its stability in the long run. Hence, simply by studying these statements, an investor makes a decision of investment. Thus it is extremely important that the statements show true and correct information at the time of reporting. The council has set rules and regulations which specify the method of valuation of investment as well as stock, it also shows how it should be recorded and shown in the financial statements. Thus, the auditors are required to follow the system and report it.
Similarly, the council has mentioned the importance of internal controls which are extremely important for an organization. The auditor should see to it that there are internal controls existing in an organization and the same is efficient, if not, the auditor should report the same to the management as well.
In the given case study, the dilemma is that the company does not fall under statutory audit; hence the purchases made outside the accounting system will not come to notice. But because it has come to my notice and I am aware of the situation I would inform the owners of the company that this action is not acceptable and it means that the owners are not doing justice to the investors in the company. According to the accounting rules, whatever purchases are made should be processed within the accounting system and should be recorded as well as used for the purpose they are purchased for. The sales from these purchases are used for the Christmas party of the firm, eventually this is outside the accounting system too. This is not showing a true and correct picture of the financial statement to the readers. Hence it is the auditor’s duty to bring it into notice and ensure that appropriate action for the same is taken. Firstly, the owners of the company should not promote this and secondly, there should be a system of internal control which will ensure that the proceeds of the sale are not used for a Christmas party. It is extremely important that the purchases are recorded in the accounting system and the sales are also shown so as to show a true and correct financial report to the investors.
References
Freedman, J. (n.d.). What Is an "Ethical Issue" in Financial Accounting? [Online] Available from Houston Chronicle: Section 3. Auditing and Related Professional Practice Standards
Our Work. (n.d.). [Online] Available from FRC: https://www.frc.org.uk/Our-Work.aspx
Section 3. Auditing and Related Professional Practice Standards. (n.d.). [Online] Available from PCAOB: http://pcaobus.org/Rules/PCAOBRules/pages/section_3.aspx
