Question

Discuss the potential high risks with which your current employer, a previous employer, or company you would like to work for in the future are confronted related to these accounting issues. (Company names should not be disclosed.) Identify the controls, policies, and procedures established to minimize the risks. Analyze the effectiveness of the controls in place and suggest additional improvements to the controls.

Answer 1

Financial accounting is totally concerned with the preparation of financial statements and all the statements are published on official websites,circulated to shareholders.

Management accounting deals with the analysis of the statements prepared through financial accounting. It takes the help of the statements prepared in financial accounting and helps to analyse the performance of the company,compare with previous years performance,etc. Moreover it is also useful for inter company comparison and intra company comparison. It is prepared by the top management of the company and is not disclosed on websites or to shareholders. It is for management only to facilitate decision making process. When statements are prepared, role of financial accounting ends and role of management accounting starts to analyse those statements

Main Objectives Of Management Accounting :

1 Presentation of various financial information/statements to the Top management.

2 Measuring and analysing the performance of the business.

3 Assessing the risks to the business.

4 Helping the Top management in making various important business decisions and policy formation.

5 Allocation of limited and vital resources of the business.

Procedure to control and minimize the risk -

Step 1: Identify the Risk

The first step is to identify the risks that the business is exposed to in its operating environment. There are many different types of risks – legal risks, environmental risks, market risks, regulatory risks, and much more. It is important to identify as many of these risk factors as possible. In a manual environment, these risks are noted down manually.

If the organization has a risk management solution employed all this information is inserted directly into the system. The advantage of this approach is that these risks are now visible to every stakeholder in the organization with access to the system. Instead of this vital information being locked away in a report which has to be requested via email, anyone who wants to see which risks have been identified can access the information in the risk management system.

Step 2: Analyze the risk

Once a risk has been identified it needs to be analyzed. The scope of the risk must be determined. It is also important to understand the link between the risk and the different factors within the organization. To determine the severity and seriousness of the risk it is necessary to see how many businesses function the risk effects. There are risks which can bring the whole business to a standstill if actualized, while there are risks which will only be minor inconveniences in analyzed. In a manual risk management environment, this analysis must be done manually.

When a risk management solution is implemented one of the most important basic steps is to map risks to different documents, policies, procedures, and business processes. This means that the system will already have a mapped risk framework which will evaluate risks and let you know the far-reaching effects of each risk.

Step 3: Evaluate or Rank the Risk

Risks need to rank and prioritize. Most risk management solutions have different categories of risks, depending on the severity of the risk. A risk that may cause some inconvenience is rated lowly, risks that can result in catastrophic loss are rated the highest. It is important to rank risks because it allows the organization to gain a holistic view of the risk exposure of the whole organization. The business may be vulnerable to several low-level risks but it may not require upper management intervention. On the other hand, just one of the highest rated risks is enough to require immediate intervention.

Step 4: Treat the Risk

Every risk needs to be eliminated or contained as much as possible. This is done by connecting with the experts of the field to which the risk belongs to. In a manual environment, this entails contacting each and every stakeholder and then setting up meetings so everyone can talk and discuss the issues. The problem is that the discussion is broken into many different email threads, across different documents and spreadsheets, and many different phone calls.

In a risk management solution, all the relevant stakeholders can be sent notifications from within the system. The discussion regarding the risk and its possible solution can take place from within the system. Upper management can also keep a close eye on the solutions being suggested and the progress being made from within the system. Instead of everyone contacting each other to get updates, everyone can get updates directly from within the risk management solution.

Step 5: Monitor and Review the risk

Not all risks can be eliminated – some risks are always present. Market risks and environmental risks are just two examples of risks that always need to be monitored. Under manual systems monitoring happens through diligent employees. These professionals must make sure that they keep a close watch on all risk factors. Within a digital environment, the risk management system monitors the entire risk framework of the organization. If any factor or risk changes, it is immediately visible to everyone. Computers are also much better at continuously monitoring risks than people.