ACCA holds discussion on financial reporting and controls
Tuesday, 9 July 2013 00:14
-
- {{hitsCtrl.values.hits}}
ACCA recently conducted a workshop on reviewing and reporting of financial controls based on the Sarbanes-Oxley Act of 2002 a law passed in the USA.
Conducted at the Cinnamon Lakeside in collaboration with SJMS Associates and Echelon Magazine, the keynote speaker at this occasion was Ganesh Balakrishnan from Deloitte Haskins & Sells in Hyderabad, India.
With 20 years of experience behind him and appointed as the learning coordinator for Deloitte India on all training competencies he is a regular speaker at the Institute of Chartered Accountants of India.
He is attached to the IFRS faculty with the Institute for in house and open house programs and was a co-opted member of the Research Committee of the Institute’s southern region for 2009/10 and of the Auditing and Assurance Standards Board for 2010/11. In addition he is a technical reviewer in the Quality Review Board instituted by the Government of India and serves as a faculty for Dunn and Bradstreet for its in house and open house programs.
Balakrishnan commenced his address by stating that the establishment and monitoring of internal controls enables a better communication of the material factors that create value by being useful to various stakeholders that include shareholders, debtors, clients, employees and governments, in understanding a company’s financial performance and management’s stewardship of the company’s resources.
He explained that the two key components required under the Sarbanes-Oxley Act in a financial report, are internal controls and financial reporting. Management’s ability to fulfil its financial reporting responsibilities depends in part on the design and effectiveness of the processes and safeguards it has put in place over accounting and financial reporting.
Citing areas of importance in internal controls he pointed out that they included the control environment that consist of the integrity, ethical values and competence of the entity’s people, management’s philosophy and operating style, the way management assigns authority and responsibility, and organises and develops its people and the attention and direction provided by the board of directors.
Risk assessment was another important factor to consider. This includes the variety of risks faced by an entity from external and internal sources. Risk assessment is the identification and analysis of relevant risks for achievement of the objectives, forming a basis for determining how the risks should be managed. Because economic, industry, regulatory and operating conditions will continue to change, mechanisms are needed to identify and deal with the special risks associated with change.
He went on to say that control activities that are the policies and procedures that help ensure management directives are carried out and consist of a range of activities as diverse as approvals, authorisations, verifications, reconciliations, reviews and operating performance, security of assets and segregation of duties should also be considered.
Balakrishnan further explained that another aspect to look at was information and communication where pertinent information must be identified, captured and communicated in a form and timeframe that enable people to carry out their responsibilities. Information systems should produce reports, containing operational, financial and compliance reacted information that make it possible to run and control the business and should deal with not only internally generated data, but also information about external events, activities and conditions necessary to informed business decision-making and external reporting
Finally there were the monitoring activities. Internal control systems need to be monitored, a process that assesses the quality of the system’s performance over time. This is accomplished through ongoing monitoring activities, separate evaluations or a combination of the two.
Balakrishnan concluded by stating that the world of corporate reporting needs to evolve in developing and third world countries. There is a gap between the information currently being reported by companies and the information investors need to assess business prospects and value. Therefore today’s financial reports should include a forward-looking perspective on the business corroborated, marking a shift in focus from short-term historical financial performance to providing an understanding of how management is driving the medium to long-term business prospects.
Such financial reporting can help fill this gap by providing a basis for companies to explain their value creation more effectively to the capital markets and can help them look beyond companies’ short-term results to form clearer views on long-term value.
