Risk in accounting can arise from very small errors in the books. Marsee, an accountant in a Construction Company must maintain all the records in a clear manner so as to minimize the effects of risk. A construction setting is very prone to risks since it involves a lot of variables that must be factored in the books. The risks in her accounting records can arise due to;
First, large amounts of cash at hand to pay petty transactions that might not be in the general budget increase the chances of misappropriations. Liquid cash is very prone to impulse spending and allocations hence disrupt the financial statements. It is thus difficult to record such transactions since they might be too many e.g. purchase of glue, pen etc. Funds may get channeled to inventory with high demands at the expense of other sectors. Assets that are easy to convert pose a great risk of misappropriation.
Internal controls can lead to risks in accounting too. Marsee may have accounting problems that arise from other accountants. Human beings are prone to errors and there is need for the management to be alert on the records. In addition, risk is increased in the items that are very susceptible top accounting risks example is that prices may fluctuate after the records have been entered thus causing a risk. The cause is mainly due to backup records. Lack of constant independent audits can also increase risks. Moreover, common problems like burglary can lead to errors especially in the case of liquid assets like cash and construction materials..
In a nutshell, accounting information is so important in determining the success of a firm. Mersee can succeed in reducing the risks by careful investigations and keeping the relevant backup files. There is need to have adequate physical security to guard cash at hand and other current assets.
Works cited
Chorafas, Dimitry. Risk Accounting and Risk Management for Accountants. Butterworth-Heinemann, 2007. Print.
