Why Do Firms Voluntarily Disclosure Information Essay

Why Do Firms Voluntarily Disclosure Information - Essay Example Economic theories propose that it is better for firms to provide additional information to investors and financial analysts, because the voluntary disclosure assists investors and shareholders to analyse the firm and thereby to estimate future rate of returns on their investment. This paper will discuss why modern firms voluntarily disclose their information. Voluntary disclosure of information While analysing modern corporate culture, it seems that organisations voluntarily disclose more information in their annual reports than what is actually required to comply with the basic financial and accounting regulations. Firms voluntarily disclose three types of information such as strategic, non-financial, and financial information. As per the logical conclusions made by Kim, better informed shareholders were satisfied with less disclosure whereas uninformed shareholders preferred more disclosure (as cited in Cataldo, 2003, p.68). Thus, Kim linked voluntarily disclosure of information wi th shareholder interests. According to Williams (2008), nowadays firms engage in operations that are not captured by accounting process but have an impact on the firm’s profitability; therefore, such activities of firms have considerable significance in the sense that they may cause changes to investment decisions. Hence, firms make voluntary disclosures so as to overcome these troubles. It is relevant to use normative and positive accounting theories to explain the reasons for firms’ voluntary disclosure of information. The normative accounting theory justifies the feasibility of an accounting treatment whereas the positive accounting theory scientifically shows the truth of an accounting phenomenon. More simply, the former approach illustrates accounting taxonomies as an art while the latter represents accounting as a science of economy. The normative theories deal with intangibles and corporate, social, and environmental reporting while the positive theories represe nt social and environmental disclosures. Normative theories The normative approaches reflect the direct economic benefits of information disclosures. Economists identify that the major portion of the real value of a company is based on intangibles assets including goodwill and brand loyalty; a firm’s value of intangible assets is represented by the difference between market value and book value of the firm (Lecture 4, slide 7). In addition, the real value of a firm also embraces the intellectual capital of the firm including patents, computer programs, customer relationship, and trademarks (Lecture 4, slide 11). Traditional accounting systems do not provide investors with adequate information about intangible assets and intellectual capital. Hence, investors find difficulty in estimating the real value of the company. This is one of the main reasons why firms voluntarily disclose their information. Since modern societies give great emphasis on environment safety and public we lfare, organisations cannot vie with the market competition unless they maintain effective corporate responsibility policies. As Deegan (2002) reports, nowadays majority of the multinational corporations prepare an annual sustainability report in order to promote their social responsibility policies. Even though firms set different goals while initiating corporate sustainability reporting, their main focus is to enhance the firms’ international operations and to convince investors. Healy and Palepu (2001) argue that corporate disclosure is essential for the effective functioning of capital market. In total, normative theories

Technology to Improve Internal Audit Research Paper

Technology to Improve Internal Audit - Research Paper Example Conclusion 7 Name of the Student: Name of the Professor: Course Number: Date of the Paper: Technology to Improve Internal Audit 1. Introduction The internal audit is defined as the process of an autonomous appraisal function that is established within the organization to evaluate and examine the activities as a service. The main objective of the internal audit is to assist the members of the organization to effectively perform their responsibilities. The end result of the internal audit is to provide the analysis, assessment, suggestion, direction, and information regarding the reviewed activities. The end objective is promoting control over the reasonable cost (Kagermann 4; Trenerry 266; Pickett 325). The primary role of the internal audit has undergone radical changes. After the introduction of Sarbanes Oxley (SOX) Act in the USA in 2002 the internal audit has started to redeploy the financial control auditing (Leung, Cooper and Perera 785). This paper focuses on how technology has improved the internal audit. 2. Literature Review 2.1 New methodologies in use The recent development in the technology has led to the use of more sophisticated methods for internal auditing in the organization. The methodologies that are currently in use are (Dittenhofer 462): Computer assisted audit techniques (CAAT) Expert System Analytical Auditing 2.1.1 Computer assisted audit techniques The most dynamic way of processing audit is the use of computer assisted audit techniques (CAAT). This technology is not a new one, but requires a continuous up-gradation to increase the efficiency of auditing account inventories, receivables, fixed assets accumulation, and accounts payable. This method consists of the process of downloading the subject files and testing these files irrespective of the computer system of the auditee. The CAAT process eliminates the hand processed and time consuming substantive testing. It produces the automatic computer generated working paper, which is displa yed on the basis of â€Å"by difference†. There are several other computer applications that enhance the audit operation, reduce the time consumed, and also increase the accuracy of the work (Dittenhofer 462-463). 2.1.2 Analytical Auditing The use of the analytical auditing procedure is the recent development in the process of internal auditing. This process leads to the development of the relationship between the operational or physical aspects and financial aspects. The procedures claim that there must exist some relationship and unless they exist, some mitigating circumstances must be there, or if not some investigation should be done to determine the reason of inexistence. The technique tends to find the areas that require more in-depth investigation process and also identifies the areas that require a very little in-depth investigation. This method can be used as the potential area of interest. Without the indication of the problem absence and further examination, this p rocess cannot be used in a positive way (Dittenhofer 463). 2.1.3 Expert System The procedure of the expert system is another development that enhances the operation of internal auditing. This procedure includes computer programs that are identical to human reasoning and can be used to alert the auditor to investigate certain situations or the audit activities that should be considered as the response to the situation that appears to be unusual. Hence, two capacities are displayed by the functioning of the expert system. Firstly, the system is built on the computer program that records information automatically and compares it to the standard information that is already present to find the situation that