Accounting is a process through which the economic information of a company is identified, measured and communicated to the internal and external customers. It helps to identify the financial health of a company, which in turn facilitates to judge the performance of a company. So, it is very important to have a good accounting system, to implement effectively.
Globally, the business environment has kept on changing over time. For example, the businesses have been globalized; Multi-national companies came into existence. Information technology has been advanced to a great extent over time. These all have an impact on the accounting system. So, it is prerequisite to identify the challenges in accounting system from time to time and it is required to address them. These challenges can be typical for different countries depending on the accounting practices, government intervention and the prevailing regulations for accounting practices. Let’s have a discussion on the challenges that the Australian accounting industry is facing.
Accounting Failure Impacts
There are many examples of different Australian companies, for instance Allco Finance Group, HIH Insurance, etc., which collapsed financially. It caused the shareholders of the respective companies to lose billions of dollars. At the same time, it had impacted the society as a whole through raising the unemployment rate. So, such cases of collapses are seriously taken into consideration and the flaws in the accounting system, if any have been focused to address them. In response to these unfavorable financial crises, in Australia, different regulatory guidelines and a professional code of ethics were brought into practice. Different parameters such as transparency and commitment to ethics should be focused on the accounting system.
The Five challenges, faced by the Australian Accounting industry
One of the challenges in this industry is the unqualified and incompetent professional or accountants. It could be a serious issue for this industry. There are no regulatory rules in Australia to start a profession as an accountant. For other professions such as solicitors and doctors, they need to clear the qualification exams and also requires to associate with their relevant professional body. But, in case of accountants, anyone can start practicing as an accountant, even if he or she does not hold the sufficient qualifications as an accountant. Some businesses seek advice from even such unqualified accountants. With the lack of skill of accountancy, they provide poor advice, which in turn adversely affects the business. Such information can help with accounting assignment.
Another challenge is associated with the financial markets. There is a very competitive environment for different financial instruments such as convertible notes. So it becomes challenging to create such financial instruments with the extended features so as to attract more investors. And, at the same time, it is even tougher to deal with such complicated financial instruments.
Online Accounting Softwares
The development of online software technology facilitates business owners to do their business related services like the tasks of an accountant, by themselves. So, they prefer to do these tasks themselves. But, they don’t realize that professional accountants have expertise in handling account related things and so they can provide services in the best way with a very little chance of making mistakes. In such a scenario, businesses end up with a losses to the tune of crores.
Next one challenge that the accounting industry is facing, is the trend of consolidating or combining two companies. If there is a problem in a company, the management starts thinking to consolidate it rather than trying to find the real problems. Just consolidating the firms never solve the upfront problems. Sharing resources and providing the diversified products at lower costs are a good approach, but in order to provide it, consolidation of firms is not always the ultimate option.
Another one challenge in this industry is one of the assumptions, made in accountancy; the going concern assumption. The treatment of the available accounting data is different for the company if we assume the going concern assumption about the company rather than considering it to be liquidated in one year, two years, five years or ten years. In an audit report, it has to be mentioned. If the audit report is prepared, assuming the going concern assumption for the company and unfortunately, the company will be liquidated in the near future, then in such a scenario, a case can be registered against the auditors, who did auditing.
Need for an Effective Accounting System
In order to have an effective accounting system in place, we have to first identify the challenges in this field and then should be addressed properly. Not just business but it also helps young finance students understand the different accounting systems & their repurcussions. It is very important for some one learning accounting and finance to learn them in the correct way. Otherwise the students may get low grades in accounting and screw altogether.