Week 4 Discussion Prompt 1
Pro forma income statement and pro forma balance sheet are important financial statements in any business. The two financial statements have specific procedures observed when preparing them. The first step relates analyzing the cash flows within the business. Cash flows are divided into three groups operating cash flows, investment cash flows, and financing cash flows. The analysis will enable the accountants or any other personnel to assess the depreciation, cash inflows, cash outflows, taxes, work in progress, debts, credits, and finished goods ( Baginski et al., 2016 ). All these items will help them in preparing both the pro forma income statement and pro forma balance sheet. SOX Act of 2002 helps in addressing such issues as it protects the investors from calculating accounting activities in corporations in a fraudulent manner. Additionally, it prevents accounting fraud and improves financial disclosures in corporations.
Week 4 Discussion Prompt 2
In any organization, there are two groups of auditors mandated with the auditing activities within the organization. The first group is the internal and auditors and the second one are the external auditors. Internal auditors perform frequent checks on the internal transactions in the organization while external auditors perform the final checks and proving the credibility of the internal auditors. The relationship between the internal and external auditors has been established through the adoption of certain rules and procedures. External auditors should not have any close relation with the stakeholders of the business ( Baginski et al., 2016 ). External auditors are expected to portray integrity and professionalism while performing auditing activities such they cannot be compromised. Additionally, they should not own any shares within the organization they are expected to offer auditing services.
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Week 5 Discussion Prompt 1
Management entrenchment has been a major problem affecting many organizations in various countries globally. The situation occurs when the managers pursue the personal interest rather than the interests of the stakeholders. Such problems arise due to poor remuneration, lack of motivation, and the recognition of the managers’ efforts when undertaking their duties. The first step relates to ensuring that the managers are offered reasonable remuneration as per their responsibilities in the organization ( Baginski et al., 2016 ). Reasonable remuneration will satisfy the needs of the managers such they can concentrate on the interests of the stakeholders. Motivation helps in boosting the morale of any employee in the organization. Such an employee will struggle to know that their efforts will be recognized and appreciated being part of the success of the organization.
References
Baginski, S., Demers, E., Wang, C., Yu, J., Jiang, D., Kumar, A., & Law, K. K. (2016). The informativeness of pro forma and street earnings: an examination of information asymmetry around earnings announcements. Review of Accounting Studies , 21 (1), 198-250.
