Preparation of accounting records using spreadsheets

This document provides a detailed explanation of how to prepare accounting records using spreadsheets. It includes examples of journal entries, T-accounts, unadjusted trial balance, and types of adjusting entries. The document also discusses the importance of adjusting entries in maintaining accurate financial statements.

ASSIGNMENT

Contents
Solution – 1 - Preparation of accounting records – using spreadsheets......................................................2
Journal Entries.........................................................................................................................................2
T. accounts..............................................................................................................................................3
Unadjusted Trial Balance.........................................................................................................................5
Types of Adjusting Entries.......................................................................................................................6
Adjusting Entries for Flash Cleaning Services as at 31 July 2018..............................................................7
Ten Column Worksheet in the books of Flash Cleaning Services.............................................................8
Financial Statements...............................................................................................................................9
Ratio Calculation....................................................................................................................................11
Evaluation of ratios................................................................................................................................11
Change in ratio’s if company repays the bank loan...............................................................................12
Recommendation..................................................................................................................................12
Solution – 2 - History of accounting – essay..............................................................................................13
Solution – 3 - ABC Learning Case Study.....................................................................................................15
3 (1). Failure of ABC Learning................................................................................................................15
3(2) The Ethical Issues...........................................................................................................................16
References.................................................................................................................................................17

Solution – 1 - Preparation of accounting records – using
spreadsheets
Journal Entries
Journal Entries in the books of Flash Cleaning Services
For the month of July, 2018
Date Particulars Dr./Cr. Amount
1-Jul-18 Bank Dr. $30,000
Capital Cr. $30,000
(Being capital contribution recorded)
1-Jul-18 Bank Dr. $20,000
Loan Cr. $20,000
(Being loan taken from bank)
1-Jul-18 Motor Vehicle - Van Dr. $18,000
Bank Cr. $18,000
(Being vehicle purchased)
1-Jul-18 Insurance expense Dr. $3,600
Bank Cr. $3,600
(Being insurance paid for the period 1 July to 30 June)
1-Jul-18 Cleaning equipment Dr. $4,800
Bank Cr. $4,800
(Being paid for cleaning equipment)
9-Jul-18 Supplies Dr. $2,400
Accounts payable Cr. $2,400
(Being supplies purchased on credit)
13-Jul-18 Bank Dr. $500
Service revenue Cr. $500
(Being service revenue received)
20-Jul-18 Wages expense Dr. $1,600
Bank Cr. $1,600
(Being wages paid upto 20 July)
25-Jul-18 Bank Dr. $5,500
Unearned service revenue Cr. $5,500
(Being service revenue received in advance)
27-Jul-18 Accounts payable Dr. $2,000
Bank Cr. $2,000
(Being amount paid for purchase of supplies on 9th July)

31-Jul-18 Interest expense Dr. $300
Bank Cr. $300
(Being interest paid on loan)
31-Jul-18 Advertising expense Dr. $1,600
Bank Cr. $1,600
(Being advertising expense paid for the month)
T. accounts
General Ledgers
In the books of Flash Cleaning Services
For the month of July, 2018
Bank
Date Description Debit Date Description Credit
1-Jul-18 Capital $ 30,000 1-Jul-18 Motor Vehicle - Van $ 18,000
1-Jul-18 Loan $ 20,000 1-Jul-18 Insurance expense $ 3,600
13-Jul-18 Service revenue $ 500 1-Jul-18 Cleaning equipment $ 4,800
25-Jul-18 Unearned service revenue $ 5,500 20-Jul-18 Wages expense $ 1,600
27-Jul-18 Accounts payable $ 2,000
31-Jul-18 Interest expense $ 300
31-Jul-18 Advertising expense $ 1,600
31-Jul-18 Balance c/d $ 24,100
$ 56,000 $ 56,000
Cleaning Equipment
Date Description Debit Date Description Credit
1-Jul-18 Bank $ 4,800 31-Jul-18 Balance c/d $ 4,800
$ 4,800 $ 4,800
Motor Vehicle - Van
Date Description Debit Date Description Credit
1-Jul-18 Bank $ 18,000 31-Jul-18 Balance c/d $ 18,000
$ 18,000 $ 18,000
Supplies
Date Description Debit Date Description Credit
9-Jul-18 Accounts payable $ 2,400 31-Jul-18 Balance c/d $ 2,400

$ 2,400 $ 2,400
Capital
Date Description Debit Date Description Credit
31-Jul-18 Balance c/d $ 30,000 1-Jul-18 Bank $ 30,000
$ 30,000 $ 30,000
Loan
Date Description Debit Date Description Credit
31-Jul-18 Balance c/d $ 20,000 1-Jul-18 Bank $ 20,000
$ 20,000 $ 20,000
Accounts Payable
Date Description Debit Date Description Credit
27-Jul-18 Bank $ 2,000 9-Jul-18 Supplies $ 2,400
31-Jul-18 Balance c/d $ 400
$ 2,400 $ 2,400
Unearned Service Revenue
Date Description Debit Date Description Credit
31-Jul-18 Balance c/d $ 5,500 25-Jul-18 Bank $ 5,500
$ 5,500 $ 5,500
Service Revenue
Date Description Debit Date Description Credit
31-Jul-18 Balance c/d $ 500 13-Jul-18 Bank $ 500
$ 500 $ 500
Advertising Expenses
Date Description Debit Date Description Credit
31-Jul-18 Bank $ 1,600 31-Jul-18 Balance c/d $ 1,600
$ 1,600 $ 1,600

Wages Expenses
Date Description Debit Date Description Credit
20-Jul-18 Bank $ 1,600 31-Jul-18 Balance c/d $ 1,600
$ 1,600 $ 1,600
Interest Expense
Date Description Debit Date Description Credit
31-Jul-18 Bank $ 300 31-Jul-18 Balance c/d $ 300
$ 300 $ 300
Insurance expense
Date Description Debit Date Description Credit
1-Jul-18 Bank $ 3,600 31-Jul-18 Balance c/d $ 3,600
$ 3,600 $ 3,600
Unadjusted Trial Balance
Unadjusted Trial Balance for the month of July, 18
Trial Balance
Particulars Debit Credit
Bank $ 24,100
Capital $ 30,000
Loan $ 20,000
Motor Vehicle - Van $ 18,000
Cleaning equipment $ 4,800
Supplies $ 2,400
Accounts payable $ 400
Service revenue $ 500
Wages expense $ 1,600
Unearned service revenue $ 5,500
Interest expense $ 300
Advertising expense $ 1,600
Insurance expense $ 3,600
Total $ 56,400 $ 56,400
Types of Adjusting Entries
The adjusting entries are passed at the end of the accounting period. These entries are passed to adjust the revenue
and expenses with the accounting period to which they pertains. Hence, adjusting entries are passed to comply with

accrual method of accounting. As per generally accepted accounting principles, the financial statements are
mandated to be prepared as per accrual method, hence passing of adjusting entries is a mandatory step. It goes
beyond the cash system of accounting, which means that the transaction should be recorded as and when the cash is
received or paid. These entries helps to maintain the completeness of the financial statements and thus helps in
maintaining true and fair view. These entries generally include one balance sheet account and one P&L account.
("What are adjusting entries? | AccountingCoach", 2019)
There are five types of adjusting entries. These are:
1. Accrued revenues – Accrued revenue means the revenue which has been earned but not yet received and not
recorded till. It simply means goods sold or services provided against which the cash is yet to receive. The journal
entry in this case involves one asset side account and another revenue account. The journal entry of accrued
revenue is
Accounts receivable Dr.
To Sales / Service revenue Cr.
Example
ABS company has made a sale of $500 to Mr. A, the invoice is raised by the company, but the payment has not
been received. At the accounting period end, this will become an accrued revenue adjusting entry and the company
has to pass the above-mentioned journal entry in its books to ensure that the revenues are appropriately and
completely recorded and are reflecting true and fair view.
2. Accrued expenses – Similar to accrued revenues, accrued expenses means that the expense has been incurred but
has not been paid and not recorded in the journals yet. The recording of accrued expenses is important so that the
expenses reflects completeness. The journal entry of recording of accrued expenses is
Expenses Dr.
To Expenses payable Cr.
Example
During the month of December, the company has consumed electricity whose invoice is received on 30th
December. The electricity bill is due to be paid on 31st December. Hence, in this case, the company needs to
account for the electricity expense by passing the above-mentioned entry.
3. Deferred revenue – Deferred revenue means that the money has been received but services are not yet provided or
goods are not yet sold. It simply means the revenue has been received in advance. The journal entry to record such
type of transactions are:
Bank Dr.
To Unearned service revenue Cr.
Further, after receipt of amount, if any services are provided, then the adjusting entry will be:
Unearned service revenue Dr.
To Service revenue Cr.
Example

The company has received $3000 in advance from a customer for which the services are yet to be provided. At the
end of the accounting period, the services amounting to $1000 has been provided against the advance amount.
Hence, the adjusting entry will be:
Unearned service revenue Dr. $1000
To Service revenue Cr. $1000
4. Deferred expenses – Similar to deferred revenue, the deferred expenses are those expenses which have been paid in
advance for the services which are yet to be consumed. Its typical example contains Insurance expenses which are
generally paid for one year. The adjustment entry of deferred expenses is required so that the expenses pertaining
to next accounting period, is not involved in the current year P&L. The journal entry of deferred expenses is as
below:
Insurance expense Dr.
To Prepaid insurance Cr.
Example
The company has paid insurance from July 18 to June 2019 in the month of July, 2018 amounting to $1200. The
company’s accounting period ends at December. The journal entry to charge off expenses for the CY 2018 will be
as follows:
Insurance expense Dr. $600
To Prepaid insurance Cr. $600
5. Depreciation expenses – Another type of adjusting entry is recording of depreciation expense. Depreciation refers
to the reduction in the value of the asset due to normal wear and tear, technology obsolesces, passage of time, etc.
these entries are required to be passed so that the non-current assets reflects true and fair view. The adjusting entry
of recording depreciation expense is as below:
Depreciation expense Dr.
To Accumulated Depreciation Cr.
Adjusting Entries for Flash Cleaning Services as at 31 July 2018
Journal Entries in the books of Flash Cleaning Services
For the month of July, 2018
Date Particulars Dr./Cr. Amount
31-Jul-18 Wages expense Dr. $2,200
Wages payable Cr. $2,200
(Being wages accrued for the month of July recorded)
31-Jul-18 Accounts receivable Dr. $12,600
Service revenue Cr. $12,600
(Being services provided accrued)
31-Jul-18 Fuel expense Dr. $190
Telephone expense Dr. $100
Expenses payable Cr. $290

(Being expenses accrued for the month of July)
31-Jul-18 Supplies expense Dr. $300
Supplies Cr. $300
(Being supplies consumed recorded)
31-Jul-18 Unearned service revenue Dr. $500
Service revenue Cr. $500
(Being servcies provided transferred to revenue account)
31-Jul-18 Depreciation expense Dr. $208
Accumulated depreciation - Van Cr. $208
(Being depreciation charged for the month of July, refer WN-1)
31-Jul-18 Prepaid insurance Dr. $3,300
Insurance expense Cr. $3,300
(Being insurance for 11 months transferred to prepaid)
Ten Column Worksheet in the books of Flash Cleaning Services
Ten Column Worksheet in the books of Flash Cleaning Services
For the month of July, 2018
Particulars
Unadjusted Trial
Balance Adjustments
Adjusted Trial
Balance
Income
Statement Balance Sheet
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Bank
$
24,100
$
-
$
-
$
-
$
24,100
$
-
$
24,100
$
-
Capital
$
-
$
30,000
$
-
$
-
$
-
$
30,000
$
-
$
30,000
Loan
$
-
$
20,000
$
-
$
-
$
-
$
20,000
$
-
$
20,000
Motor
Vehicle -
Van
$
18,000
$
-
$
-
$
-
$
18,000
$
-
$
18,000
$
-
Accumulate
d
depreciation
- Van
$
-
$
208
$
-
$
208
$
-
$
208
Cleaning
equipment
$
4,800
$
-
$
-
$
-
$
4,800
$
-
$
4,800
$
-
Accounts
receivable
$
12,600
$
-
$
12,600
$
-
$
12,600
$
-
Supplies
$
2,400
$
-
$
-
$
300
$
2,100
$
-
$
2,100
$
-
Prepaid
insurance
$
3,300
$
-
$
3,300
$
-
$
3,300
$
-

Accounts
payable
$
-
$
400
$
-
$
-
$
-
$
400
$
-
$
400
Expenses
payable
$
-
$
290
$
-
$
290
$
-
$
290
Wages
payable
$
-
$
2,200
$
-
$
2,200
$
-
$
2,200
Unearned
service
revenue
$
-
$
5,500
$
500
$
-
$
-
$
5,000
$
-
$
5,000
Service
revenue
$
-
$
500
$
-
$
13,100
$
-
$
13,600
$
13,600
Wages
expense
$
1,600
$
-
$
2,200
$
-
$
3,800
$
-
$
3,800
Interest
expense
$
300
$
-
$
-
$
-
$
300
$
-
$
300
Advertising
expense
$
1,600
$
-
$
-
$
-
$
1,600
$
-
$
1,600
Insurance
expense
$
3,600
$
-
$
-
$
3,300
$
300
$
-
$
300
Fuel expense
$
190
$
-
$
190
$
-
$
190
Telephone
expense
$
100
$
-
$
100
$
-
$
100
Supplies
expense
$
300
$
-
$
300
$
-
$
300
Depreciation
expense
$
208
$
-
$
208
$
-
$
208
Total
$
56,400
$
56,400
$
19,398 $ 19,398
$
71,698
$
71,698
$
6,798
$
13,600
$
64,900
$
58,098
Profit / (loss)
$
6,802
$
-
$
-
$
6,802
Total
$
13,600
$
13,600
$
64,900
$
64,900
Financial Statements
Flash Cleaning Services
Income Statement
For the month ended July, 2018
Particulars Amount ($)
Service revenue $13,600
Total income $13,600
Less: Expenses
Wages expense $3,800
Interest expense $300

Advertising expense $1,600
Insurance expense $300
Fuel expense $190
Telephone expense $100
Supplies expense $300
Depreciation expense $208 $6,798
Net Loss $6,802
Flash Cleaning Services
Statement of Changes in Equity
For the month ended July, 2018
Particulars Amount ($)
Capital
Opening balance $0
Add: Capital introduced $30,000
Less: Drawings $0 $30,000
Retained earnings
Opening balance $0
Add: Loss for the year $6,802 $6,802
Total $36,802
Flash Cleaning Services
Balance Sheet
As on 31 July, 2018
Particulars Amount ($)
(I) Assets
Non-Current Assets
Cleaning equipment $4,800
Motor Vehicle - Van $18,000
Less: Accumulated Depreciation -$208 $22,592
Total non-current assets $22,592
Current Assets
Bank $24,100
Accounts receivable $12,600
Supplies $2,100
Prepaid insurance $3,300 $42,100
Total current assets $42,100
Total Assets $64,692

(II) Liabilities
Non-Current Liabilities
Bank Loan $20,000 $20,000
Current Liabilities
Accounts Payable $400
Expenses payable $290
Wages payable $2,200
Unearned service revenue $5,000 $7,890
Equity
Capital $30,000
Retained earnings $6,802 $36,802
Total Liabilities and Equities $64,692
Ratio Calculation
(a) Current Asset Ratio = Current assets/Current Liabilities
= 5.34
(b) Debt Ratio = Total Debt / Total assets
= 31%
Evaluation of ratios
Current Ratio
The current ratio is a major liquidity ratio which shows the company's ability to meet its short -term obligations
from its short-term assets. It is calculated by dividend current assets with current liabilities. Current assets are those
assets which can be converted into cash readily. Similarly, current liabilities are those liabilities which are payable
within 12 months of reporting period. The ideal current ratio should be 2:1.
In the given case, the company’s current ratio is 5.34 which means that the company’s current assets are 5 times of
its current liabilities. The company has kept much amount in bank and with accounts receivable, so the company
needs to improve upon this ratio.
Debt Ratio
The debt ratio shows the proportion of the company's assets financed by its debts. It shows the dependency of
company’s debt over its assets.

In the given case, the company’s debt ratio is 31% which means that the company’s debts are 31% of its total assets.
The company can take more debt to ensure that its resources are utilized optimally. Hence, the company needs to
improvise on this ratio as well.
Change in ratio’s if company repays the bank loan
If the company repays its bank loan, then there will be no change in the current asset ratio however, the company’s
debt ratio will become zero due to absenteeism of debt from the company’s structure which shows the improper
management of company’s resources.
Recommendation
We do not recommend paying the bank loan. As having debt ratio as zero indicates that the company has no debt
risk and further some investors also prefer company’s with zero or low debt risk. However, having no debt reflects
that the company is not using its resources optimally and the business is financed entirely by equity and run through
using the assets of the company. Hence, it provides lower return on assets and thus disinvests potential investors.

Solution – 2 - History of accounting – essay
Double entry system of accounting gets its name from the system of recording each transaction as a debit to one
account head and a credit to another account head. For example to record a sale of $100 we have to debit cash for $
100 and credit sales for the same amount. The basic accounting equation in this system of accounting is Assets=
Equity + Liabilities. This is also an error detection tool where the sum of all debits of all accounts should be equal to
the sum of credits of all accounts. However compensating errors may still be there.
1. The double entry system of book keeping has its origins among the Jewish banking community of Cairo in
the early medieval era. Italian merchants learnt the system later through their interactions with the Jewish
bankers. The oldest records of double entry book keeping in Europe were found among the Italian
treasurers in the Republic of Genoa around 1340. Their accounts contain debits and credits recorded in a
bilateral form with carry forward of previous year’s balances. These are recognized as double entry system.
By the end of the 15th century the system was widely used by the bankers and merchants all across Europe.
The earliest accounting records available in Europe were from a Florentine merchant Antonio Manucci at
the end of the 13th century. He was an accountant with Farolfi which was a money lending firm and the
ledgers of the firm for the period 1299-1300 shows the use of fully fledged double entry book keeping.
Moreover this system was introduced by in the Medici bank in the 14th century ("Double entry system of
accounting - history, definition, explanation, advantages and disadvantages | Accounting for Management",
2019).
.
The first treatise on the double entry system of book keeping was written by the Ragusan Economist Bendetto
Cortugli in 1458 and published in 1573. However Luca Pacioli, also called the father of modern accounting, a friar
and a close friend of Leonardo Da Vinci first codified the system and published the book in 1494 in Venice. This
book enabled others to use and study the system. In pre modern Europe the double entry system of book keeping is
associated with both the scales of justice and the symmetry of God’s world thus having theological and
cosmological connotations.
In Asia the system was in use in Korea even earlier during the Goryeo dynasty (918-1382). At that time Kaesong
was the centre of trade and industry. The four elements of bookkeeping originated in the 11th century.
1. The double entry system has now evolved into the most widely used and internationally accepted system of
accounting globally with numerous accounting standards for ensuring uniformity. The double entry journal
is the first stage in recording any financial transaction. The accounting cycle starts with the double entry
book keeping system. This is then followed by the ledgers, trial balance and the financial statements
comprising of the profit and loss account, balance sheet and in some cases the cash flow statement. The
double entry system of book keeping is the key to an error free set of financial statements. All errors are
detected at the stage of the trial balance itself and can be rectified through rectification entries before we
prepare and present the financial statements for the accounting period ("Accounting Techniques in Korea:
18th Century Archival Samples from a Non-Profit Association in the Sinitic World", 2019).
.
The double entry system of book keeping is done on the basis of certain basic rules known as the golden rules of
book keeping or the British system. In this system account heads are classified into 3 types- real accounts, personal
accounts and nominal accounts. Real accounts consist of assets, liabilities, capital. Personal accounts consist of
persons and organizations with which the organization has business transactions like debtors, creditors, and bank.
Nominal accounts consist of income, expenses, profits and losses. Golden rule for real accounts is “Debit what
comes in and credit what goes out”, for Personal accounts is “Debit the receiver and credit the giver” and for
Nominal accounts is “Debit all expenses and losses, credit all incomes and gains” ("Golden Rules of Accounting - 3
Main Principles", 2019).
Another approach to double entry system of book keeping is the accounting equation based approach also known as
the American approach. Here transactions are recorded based on the basic accounting equation Asset= Liability +
Capital. This shows the equality between debits and credits which is again the very basis of the double entry system
of book keeping. For this purpose all accounts are classified into the five types- income, expenses, asset, liability,
capital. For every financial transaction, an increase in one type of account will result in a decrease in another type of
account of the same amount. The accounting rule for Asset accounts is “Debit entry for all increases and credit entry

for all decreases”, for Capital accounts is “Credit entry for all increases and debit entry for all decreases”, for
Liability accounts is “Credit entry for all increases and debit entry for all decreases”, for Income accounts is “Credit
entry for all increases and debit entry for all decreases” and for Expenditure accounts is “Debit entry for all increases
and credit entry for all decreases”.
There is a correlation between the two systems but the double entry remains at the core of both. Whatever the
system used, the double entry system of book keeping is at the heart of the accounting system worldwide. There may
be small differences depending on the laws and regulations of each country, but the essence remains the same. The
system has stood the test of time and has proved its utility, ease of understanding and workability. It is hoped that
the system will continue to remain in force as the guiding principle for the future. It may be modified and improved
upon to suit the needs of the society, but will never be obsolete. Generations of accountants and accounting
professionals have been trained to study and use this system of accounting and will continue to do so in the
foreseeable future come what may.

Solution – 3 - ABC Learning Case Study
3 (1). Failure of ABC Learning
The financial highlights of the company for the year 2006-2007 are as under (all figures in million $):
Particulars 2007 2006 % Change
Income 1696.4 790.8 115
Operating profit after tax 143.1 81.5 76
Basic EPS 36 27.8 29
Final dividend 9.0 cent 8.0 cent 13
Full dividend 17.0 cent 15.0 cent 13
All parameters show growth in every aspect of the business. There was absolutely no indication of the imminent
failure of the company if we go by the audited accounts. However the company failed. Its last financial statement for
the half year ended 31.12.2007 blew the lid on the imminent social, political and financial disaster. The financial
statements audited by E&Y were the last nail in the coffin of the company. It exposed the company’s failing
financials which were so far misinterpreted and overlooked by the previous auditors Pitcher Partners. The losses
indicated by the statements were enough to wipe out any profit the company ever made. The results showed that the
company has never made any profit.
The main reason for the company’s failure being undetected for so long was the treatment of revenues which were
done differently by E&Y. The previous auditors accepted the figures as certified by the management. Payments
from developers that subsidized loss making centres were accounted for as normal revenue thus hiding the fact that a
quarter of the centres were making losses. Thus shareholders were kept in the dark. These were certified by the
previous auditors along with the intangible assets that were later proved useless. It is a failure of the regulatory and
accounting processes coupled with the company’s constant endeavour to seek higher higher expansion of market
share which carries significant risks not reflected in the financial statements. The company’s profits increased
mainly through acquisitions. However no questions were raised regarding the underlying value of assets acquired
most of which consisted of intangible assets. In the process inherent risks regarding the valuation of assets were
overlooked which should have been a red flag. However neither the auditors nor the regulators could find any fault
with the company’s accounting policies.
The actual picture of the company’s financials was drawn up by the incoming auditors E&Y was the correct one and
exposed the massive accounting jugglery lying undetected for so long. However the outgoing auditors could not be
blamed entirely. KPMG was brought in as the neutral third party to adjudicate between the current and the previous
auditors. However KPMG could not find any fault with the opinion of either party even though they were materially
divergent and the later one drew up a clear picture of the imminent disaster (Rich, Steven P., and John T. Rose.
“Interest Rate Concepts and Terminology in Introductory Finance Textbooks.” Financial Practice and Education 7
(Spring–Summer 1997), 113–121.)

3(2) The Ethical Issues
The failure of the company brings into question ethical issues of audit expectation gap. There is a misconception that
auditors go through every detail of the business with a fine tooth comb. However this is not the case. Auditors do not
certify anything. They simply express an opinion on the financial statements prepared and presented by the
management and for which the management itself is responsible. Auditors are expected to check only to the extent
of satisfying themselves that the financial statements are true and fair. Auditors have their own guidelines. However
there can be divergent opinion ("Ethical Issues for External Auditors", 2019).
The other consideration is the choice and interpretation of accounting policies which are widely divergent and which
show the same transaction in a different perspective. The pertinent question that arises here is that should we have so
much of choices available when they show such widely divergent pictures of the same financials.
The third ethical issue being raised is the role of independent directors in enforcing their corporate governance roles
regarding selection and application of accounting policies.
.Many are of the opinion that we should shift towards principle based accounting standards instead of rule based
ones as the former allows the auditors and accountants to address unique situations. It is impossible to draft
accounting policies to cover all possible situations. The trade off for this flexibility is that strong enforcement is
needed to ensure ethical behavior of auditors.
However auditors in this case are not entirely at fault as per the opinion of the third auditor KPMG. Here again
regulators have to prove beyond doubt the lack of professional care on the part of the auditors before they can be
sued. However the partners who conducted the audit stand by their report. In any accounting scandal the auditors are
targeted not always because of their guilt but because frequently they are the last ones standing. The auditors in this
case stand by their report and are of the opinion that accounting standards are subject to interpretation and
professional judgment.
There have been similar instances of corporate scandals across the world and these scandals raise a whole lot of
issues on the role of management, auditors, bankers, independent directors and various stakeholders. It is high time
all stakeholders come together and ensure that the loopholes in the system are closed so that the equity shareholders
who are the biggest losers get a fair deal for the money they invest. This will not only boost investor confidence but
also help in developing a relationship of trust among the investors and the corporate.
Such white collar crimes are very common all across the world like Enron, Xerox, Satyam etc. When these incidents
happen they shake the very foundations of the accounting profession and question the integrity and credibility of the
professionals. To maintain the reputation and dignity of the profession the professionals should exercise enough of
professional judgment and care at the time of carrying out the assignment so that they do not end up being accused
of professional misconduct. It is always better to be safe than sorry.

References
Double entry system of accounting - history, definition, explanation, advantages and disadvantages |
Accounting for Management. (2019). Retrieved from https://www.accountingformanagement.org/double-entry-
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