In the field of finance and accounting, documentation is a common practice in the internal controls of a business. Organizations should employ this measure of management to ensure effective adherence to legal, governmental, and auditing requirements (Piotroski, Wong, & Zhang, 2015). Documentation acts as a control as it helps companies and the relevant leaders of the same to minimize risk of penalties and fines. Recording the business transactions throughout its lifecycle, the firm can maintain high levels of transparency. The government and the regulatory bodies of business practice usually impose fines on the firms that fail to present such information (Piotroski, Wong, & Zhang, 2015). The rules and regulations governing various industries demand that the corporations present information related to the numerous operations of business. Documentation helps the firm identify that it complies with these standards while demonstrating its fair practices. This process helps the administrative team of the firm to avoid penalties such as withdrawal of license or jail terms for improper recording practices.
Documentation acts as a control measure in the field of finance and accounting as it maintains the quality image of the company. Throughout the history of the economic activities in the modern society, organizations actively strive to present a positive image to the observers. In this case, the company assumes that the current and potential clients, investors, and employees are always watching its performance in daily operations (Popick, 2010). Therefore, the firm undertakes documentation as an appropriate measure for improving the positive image while minimizing risk of a bad reputation. Enron serves as an excellent example that failed to incorporate proper documentation techniques leading to a negative image from investors, clients, and the business community. The organization became bankrupt and lost the confidence of all observers. The involved parties would also face the consequences of their actions including the senior executives and the related auditing firm.
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References
Piotroski, J. D., Wong, T. J., & Zhang, T. (2015). Political incentives to suppress negative information: Evidence from Chinese listed firms. Journal of Accounting Research, 53 (2), 405-459.
Popick, J. (2010) Why Documenting Business Operations is Important . Inc., Retrieved from https://www.inc.com/inc.com/janine-popick/2010/10/why-documentation-is-important.html
