By Neville Robinson, Contributor 
FINANCIAL REPORTS should provide useful information to decision-makers. These decision-makers include investors and creditors. Without a reasonable understanding of business and economic activities and the willingness to study the information with due diligence, financial reports will not be comprehensible to the user. Within this inherent contradiction lies the dilemma of the professional Accountant with regards to his or her communication tool - "The Financial Reports".
The reporting problem is compounded by the risks of certain financial reporting issues. Professional Accountants when they act as Auditors are expected to assess the risks associated with internal control weaknesses, liquidity and viability, unusual transactions, particularly with related parties, off-balance sheet arrangements and the adequacy of disclosures. After due consideration of the risks, the Auditor usually issues a report. Significant changes in organisational structure that result in the amalgamation of various positions can affect internal control over certain accounting functions.
After a lay-off or staff reduction, the remaining members of staff are often faced with increased workloads which impact on the time required to complete tasks and to make appropriate decisions, which are critical in ensuring reasonable standards of accuracy. A thorough risk analysis of the internal control function may reveal that one employee now performs key functions that were once segregated. There is no doubt that in such situations, a breakdown in internal control creates an opportunity for fraudulent activities and practices which can lead to the misappropriation of assets. Communicating the effect of the internal control weakness is a task for the professional Accountant.
Presently, the economic and business environments have resulted in liquidity challenges for many companies. Conditions of recurrent operating loss, negative working capital, loan defaults and refusal of credit from suppliers may raise questions regarding the ability of a company to continue as a going concern.
The professional Accountant must, therefore, determine how the liquidity challenges and internal control weaknesses will be addressed. Extraordinary or unusual transactions carry significant reporting risks, especially when these occur near or at the end of the reporting period. There is the risk that the transactions might not be disclosed or, if disclosed, they might be incorrectly treated or they may not be subjected to the checks and balances called for in the internal control system. Some unusual transactions are sales of fixed assets, the introduction of a marketing promotion near the end of the period, and disposal of a segment of a business.
For an extended version of this article see this Friday's Financial Gleaner.
