Question.2563 - Assignment 1 (15%) – Group is expected to have two parts (2000 words): Part 1) Choose at least three of the following topics and explain them using at least 10 academic papers: 1. Value relevance of financial reports 2. Sustainability Reporting and Development of Sustainability Standards 3. Corporate Social Responsibility and Independent Audit 4. Management’s narcissism and Financial reporting quality 5. Managerial diversity and Financial reporting Quality 6. Independent Audit’s Impact on the Information Asymmetry 7. Public governance and Independent Audit 8. Quality Control in Independent Audit 9. Peer Review in Independent Audit 10. National Accounting Principles vs IFRS 11. Importance of Independent Audit for National Economy 12. Distruptions (e.g. technology) in the accounting profession 13. Future of the auditing Part 2) Conclusion Marking scheme of Assignment 1 (15%) – Group Grading for Sections Wording, includes the following 1. Formatting (15%) 2. Detailed presentation (35%) 3. Use of language (20%) 70% Citation style (APA Style) 10% Conclusion 10% References (APA Style) 10% Total 100%
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Part 1 Introduction In this assignment, the three topics of accounting that have been chosen from the given list of topics are value relevance of financial reports, disruptions in the accounting profession and future of auditing. In the arena of capital-market based accounting, value relevance studies are an integral concept. It focuses on the relation between stock market prices and accounting values. In regards to disruptions in the accounting profession, one of the most prominent and evident disruption in the present times of dramatic technological advancements is that of digital disruption. In this regards it can be observed that because of digital disruptions the primary role of the accountant has been taken over by software or system. In this regards when the future of auditing is taken into consideration, it can be observed that with developing technology in data science, all sectors that also includes auditing has been adapting advancing technologies for enhancing the functioning. In this regards Artificial intelligence has been a game changer in the arena of auditing, which is currently at a preliminary stage in terms of its application. Thus, in the assignment, the mentioned topics would be discussed in an in-depth manner with the help of journal articles. The study of value relevance, as already stated, is associated with the field of Capital- Market-Based Accounting. The association between stock market prices and accounting values is focused in value relevance analysis. Value reliance studies have the edifice on the assumption of capital market efficiency, which is the capital market’s capacity to respond to new information on financial performance of company. Value relevance analysis can also be referred as the unique capability of financial statements to summarizer or identify data regarding the value of 3 equity securities. Due to this, the extent of association between equity market value and financial information can be inferred as an indicator of the relevance of information of the financial statement on the formation of the market value of the company (Giosi, Testarmata, & Buscema, 2013). Hence, it would not be wrong to state that value relevance is a statistical association between stock returns or firm value and accounting information. It is the ability of accounting information to summarize or capture information impacting stock return or share price. In regards to measurement perspective, value relevance is the relationship among the market value of firms and financial reporting information. The relevant accounting data would be reflected in stock return or value of the firm if an investor finds it useful. Usually, BVE and earnings dominate value relevance research. Recent studies have also put forward the fact that CFO also comprises value relevant information (Mirza, Malek, & Abdul-Hamid, 2019). There is a reduction in value relevance when companies get associated in practices involving earning management and cash part the earnings is not impacted because of these practices. On the basis of conceptual framework, the aim of financial reporting is to deliver essential information for users, particularly creditors and investors, while making investment decisions (Giosi, Testarmata, & Buscema, 2013). Studies involving effectiveness of financial information for investment decisions frequently use the term study on value relevance of accounting information as accounting data is important in deciding the inherent value of stocks/securities and implemented for decisions associated with investment as demonstrated in the stock market price. It has also been observed in regards to value relevance of accounting information that book values are more value relevant that is followed by earnings and cash flow, when analyzing it from the perspective of Singapore (Der, Polak, & Masri, 2016). It has also been observed in this regards that, a less valuation role is being played by cash flow that makes it an inappropriate substitute in valuation 4 model. While studying value relevance of financial reports, it has also been observed that combined earnings and book value are more value relevant as compared to combined cash flow and book flow. While analyzing the declined and inclined patterns in value relevance of accounting information it has been observed that there has been a rise in the value relevance of cash flow and combined cash flow and book value in Singapore. In regards to disruptions in the accounting profession, the period of industrial revolution 4.0 that formulated the roadmap for the execution of digital economy in 2011, can be considered as the initiation for the period digital disruption. The period of digital disruption made the primary role of the accountant taken over by software or system. It is because of this phenomenon, which has cause anxiety among a large section of accountants as automated functioning or systems are replacing their work. The mentioned process results in lay off of large number of workers operating in companies under the profile of accountants. The COVID-19 pandemic changed the functioning of businesses to a drastic level and made them shift to opt for digital functioning because of the uncertainty associated with the pandemic that can be referred to as digital disruption. The growth of big data has resulted to a shift in the desired competence profile from the controller and management accountant (MA) (Mujiono, 2021). Such advancements made it essential for management accountant to have or gain informant technology skills and business analytics competencies. The changing role of management accountants demanded a dramatic change on the profession’s core competencies. The era of digital disruption made it essential for accountants to expand their capabilities to address their changing work roles, which can be considered as one of the major disruptions in the accounting profession which is associated with the advancement of technologies. Similarly, Kroon, Alves, & Martins, (2021) mentioned about the evolving technologies and the need for accountants to be 5 open to constantly adapt to these technologies. This constant need to adapt to these technologies and associated changes in their functioning acts as a disruption in their operation. It is with these emerging technologies, accountants are needed to adapt to these changes and transform their skills, wherein such changes can be disruptive in nature. Marrone, & Hazelton, (2019) pointed out in this context that, emerging technologies have the power to disrupt the functioning of accountants by wither supporting the offshoring of work or completely eliminating it. In this regards, researchers also point out the scope for disrupting relationships with professions. Technologies like social media and visualization tools might allow accountants to not just communicate details from complex and large sets of data but allow them to get associated into dialogue in collaboratively create an apt response. It might result in accounts to gains prominence in communication team of an organization, rather than just remain restricted in back- office roles (Cong, Du, & Vasarhelyi, 2018). These technologies i.e., social media and visualization technologies may promote accountants to the arena of marketing and scopes of formulating smart contract with the help of these technologies may blur the roles of lawyers and accountants. Furthermore, these technologies, pose not just technical challenges for accountants to overcome of it but also moral challenges. In the process and burden of learning new technologies, accountants would be forced to make ethical choices. As an instance, the use of block chain as a tool for secrecy or accuracy or use of facebook as a tool to disseminate fake news or use it as a medium for getting involved in dialogue. While discussing about emerging technologies and its impact on various arenas of functioning, the future of auditing is also needed to be required to be discussed. The advancement of AI, data analytics and associated tool in auditing is at a preliminary stage and some time is required to completely change the arena of auditing with total application. AI can 6 contribute in auditing by ensuring enhanced performance of auditors, might introduce the idea of absolute assurance, can contribute in more value adding services to the firm, and introduce new requirements in the auditing industry (Mansoori & Khan, 2018). With the help of AI, recommendations can be provided that may enhance the value and reputation of the audit firm and change the basis of auditing standards. The change in the functioning of the industry and associated standards would be associated with number of changes, however increased demands and requirements because of these technologies might result in revolution in the auditing industry and bring in changes in the present standards along with large amount of data would be generated by these organizations. In this context, the study conducted by Lombardi, Bloch, & Vasarhelyi, (2014), put forward that according to the participants of the study, the currently used automation tools used by auditors like risk assessment and decision aid tools would continue to emerge during the next decade with meta-analysis information exchanges having drill down abilities would be more commonly used for such functioning. There have been advancements in audit education and presently there has been a rising incorporation in the use of technology and provides with new electives to assist auditing students have improved preparation for real-world audit. In order to remain up-to-dated with the constantly evolving technologies, added auditor technology training would be required particularly for experienced auditors. It has also been forecasted that during the next decade though technology would continue to be an integral part of the audit process, however, it would not overtake the judgment innate in the process of auditing. In spite of the constant technological advancements, judgment from audit professionals would continue to be important. The participants of the study also opined that the association between external and internal audit would continue to develop with more responsibility would be shifted to the functioning of internal audit (Kiratsopoulou, & Kjellberg, 2019). There are also 7 probabilities that real time statements that are more predictive would replace traditionally audited financial statements. It is further opined that in the future, because of technological advancements there would be major depth in the audit process that would make the process and functioning simple, however, firms would have less demand for hiring professionals, which would in turn lead to less individuals being hired as auditors. The requirement for number of employees in the future would also be proportional with the data processing abilities in the future. The future would also provide with enhanced data processing and audit tools due to emerging technologies. It has been also forecasted that in the future automation would further shift towards paperless audits and automation (Kiratsopoulou, & Kjellberg, 2019). Enhanced auditing tools in the future would provide with enhanced level of assurances that would also improve the legitimacy of audit firms along with reduced information asymmetry. Part 2 Conclusion Thus in the conclusion gist of the above discussed concepts can be provided. Value relevant has been defined by academic literature as the accounting information that has the ability of not just altering the expectations but also promote change in decision maker’s behaviors. In order to ascertain that accounting data reported in financial statements are value relevant, this information are required to be related to current value of company. In context to disruptions in the accounting profession, it can be stated that the period of digital disruption result in the primary role of accounting profession being taken over by software or systems. These disruptions further resulted in incorporation of new roles in the functioning of accountants. In order to be up-to-dated with the constantly evolving technologies, accountant professionals 8 are required to be active learner focusing on improving their skills. The constant need to learn new technologies and incorporate it in the functioning acts as a disruption in the operation of accountant professionals. Furthermore, the technological advancements are resulting in taking over a large number of repetitive tasks and other functioning being performed by accountants by software or systems and shifting it to automation, which in turn is resulting in reduced demand for accountant professionals in organizations. While discussing about the future of auditing, technological advancements like artificial intelligence, data analytics and tools are at an inception phase of transforming the audit field. Such technological advancements would result in changing traditional auditing process and shift it towards real-time economy. It is inevitable that audit would shift towards increased automated operation in the future due to the technological developments taking place in the field. It is naturally result in providing with enhanced and evolved auditing tools in the future. With enhancement of audit tools, there will be a decrease in risks in the future and developments in audit profession because of enhanced auditing tools would also result in new services being provided by them. 9 References Cong, Y., Du, H., & Vasarhelyi, M. A. (2018). Technological disruption in accounting and auditing. Journal of Emerging Technologies in Accounting, 15(2), 1-10. Der, B. A., Polak, P., & Masri, M. (2016). Investigation on the value relevance of accounting information: Evidence from incorporated companies in the Singapore capital market. Investment Management and Financial Innovations, (13, Iss. 3), 9-21. Giosi, A., Testarmata, S., & Buscema, I. (2013). The value relevance of financial information in troubled waters. The evidence of Italian Context. Corporate Ownership and Control, 11(1), 62-68. Kiratsopoulou, S., & Kjellberg, R. (2019). The Future of Auditing: A Qualitative Study of the Swedish Audit Profession in a Digital World. Kroon, N., Alves, M. D. C., & Martins, I. (2021). The Impacts of Emerging Technologies on Accountants’ Role and Skills: Connecting to Open Innovation—A Systematic Literature Review. Journal of Open Innovation: Technology, Market, and Complexity, 7(3), 163. Lombardi, D., Bloch, R., & Vasarhelyi, M. (2014). The future of audit. JISTEM-Journal of Information Systems and Technology Management, 11, 21-32. Mansoori, M., & Khan, D. (2018). The Future of Auditing with Application of Artificial Intelligence and Data Analytics. International Journal Of Applied Engineering Research, 13(15), 12178-12183. Retrieved 23 June 2022, from. 10 Marrone, M., & Hazelton, J. (2019). The disruptive and transformative potential of new technologies for accounting, accountants and accountability: A review of current literature and call for further research. Meditari Accountancy Research. Mirza, A., Malek, M., & Abdul-Hamid, M. A. (2019). Value relevance of financial reporting: Evidence from Malaysia. Cogent Economics & Finance, 7(1), 1651623. Mujiono, M. N. (2021). The shifting role of accountants in the era of digital disruption. International Journal of Multidisciplinary: Applied Business and Education Research, 2(11), 1259-1274.More Articles From Accounting
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