Contemporary Issues in Accounting

This article discusses contemporary issues in accounting, focusing on the Royal Commission issue and financial planning scandal at Commonwealth Bank of Australia. It explores the negative impact of these issues on the accounting and financial reporting system of the bank.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary Issues in Accounting
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CONTEMPORARY ISSUES IN ACCOUNTING
Contents
Introduction:....................................................................................................................................2
Royal Commission issue:................................................................................................................2
Financial planning scandal:.............................................................................................................3
Conclusion:......................................................................................................................................6
References:......................................................................................................................................7

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Introduction:
Accounting is the process of identifying, recording and summarizing financial transactions in the
books of accounts of an organization. Accounting as a subject has evolved over the years to
improve the process of identification recording and summarization of financial transactions in
the books of accounts. With the objective of discussing contemporary issues in accounting,
certain incidents and event occurred in relation to Commonwealth Bank of Australia are
discussed here. It is important to mention that all these issues have negatively influenced the
accounting and financial reporting system in the Commonwealth Bank.
Royal Commission issue:
Commonwealth Bank of Australia’s (CBA) financial planning business, CFPL has been banned
by the Australian Securities and Investments Commission (ASIC) from providing paid financial
services and charging fees from customers for such services. This is after the regulatory body
determined that the issues have not yet been properly fixed by the bank (Abhayawansa and
Guthrie, 2014).
CBA has been in a bitter battle with ASIC regarding an issue of charging customers fees and not
providing services for such fees termed as fees for no service. The financial planning business of
CBA, i.e. CFPL had number of inadequacy in its system processes and controls resulting fess-
for-no-services. CBA despite submitting a written response to ASIC that remediation program
has been launched to get rid of the weaknesses in the system, controls and processes has failed to
convince ASIC. ASIC February 3, 2019 has provided CBA with four months’ deadline to fix all
the anomalies in the system, processes and controls (Botez, 2014).

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With the invention of new technology and it’s ever increasing use in businesses including
accounting processes the roles and responsibilities of regulatory agencies have increased by
multiple folds. In this case the accounting process, systems and controls have not worked
properly resulting in the accounting scandal of no-service-for-fees. The accounting system
should always be safe and secure to ensure that all the financial transactions are correctly
recorded and summarized in the books of accounts of an organization. It would not be possible to
achieve the objective of true and fair representation of financial performance and position in the
financial statements if the underling accounting records are not correct. ASIC as the regulatory
authority it banned the financial service provider of CBA once the anomalies in the system
process and controls of CFLP came to the forefront (Australian Financial Review, 2019).
The company has failed to institute proper system, control and processes in place for its financial
planning unit which eventually led to the banning of the financial planning unit by the ASIC.
The objective of financial accounting would not be achieved with wrong system, processes and
controls. Thus, CBA firstly, needs to address the issues with its financial planning unit and its
accounting system, control and processes to start the financial planning operations (ABC News,
2019).
Financial planning scandal:
The financial planning scandal of CBA is known as the fee-for-no-services where number of
bank officials have collided to rob customers. Using unethical practices certain section of bank
staffs collided to rob the customers of their money by changing fees without providing any
services against such fees. The fact that the certain section of the bank officials and employees
could have manipulated the financial records by charging customer fees without any services
raised serious question about the ability of the bank to run financial planning unit with such weak

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system, controls and processes (Commonwealth Bank of Australia v Saggese, 2018). Further
what is more frightening to imagine is that the employees and official are of CBA thus, they are
from banking sections only? This means that the funds in the bank is also not fully secure as the
officials and employees that orchestrated the whole financial planning scandal of charging fees
from customers for no services are still part of the company. This is because the company has
failed to identify all the official and employees who were behind the manipulation of accounting
records and system to rob the customers. In addition, despite the passing of significant amount of
time CBA has failed to convince the regulatory body, ASIC that the processes, controls are
systems have been disinfected and all remedial actions have been taken. As a result after
significant amount of time still the ASIC has not lift the ban on the Financial Planning unit of
CBA to carry out its business operations. In fact the ban has been further extended as CBA has
been given 4 months’ time to completely get rid of all the weaknesses in processes, systems and
internal controls to ensure such fraud and scandal never take place in the future (Danckert,
2019).
The core concept of accounting is on the premise that the accounting process would enable an
organization to correctly identify, summarize and record financial transitions in a manner
suitable and conducive to prepare and present financial statements from the underlying
accounting records. The modern day business world has faced number of contemporary issues.
One contemporary issue that has always raised number of concerns is the improper use of
information technology and systems. The concern is with the controls and processes since even
smallest weaknesses in the internal control and processes of accounting system could badly
affect the true and fair nature of accounting records and subsequent financial statements prepared
from these records. Thus, it is important for the businesses to take all necessary precautions

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while introducing a new accounting system within the organization (Erbuga, 2015). The controls
and processes must be strong and proper to ensure that the system processes financial
transactions correctly and efficiently. Taking into consideration the importance of accounting
systems all efforts shall be made to ensure that the system is strong and works properly
throughout the year. It is also to be noted that periodic review of the controls and processes are
important to the efficient and proper functioning of the accounting system. Thus, it is up-to the
management to carry out periodic review to keep the accounting system, processes and controls
healthy and strong.
Accountability problem in CBA:
The public’s lack of trust in banks is mainly due to the accountability problems of the banks
which have for years under the wrap. However, the number of accounting issues recently came
to the forefront especially with CBA has certainly deteriorated the public trust on the banks
significantly. In fact the deputy Governor of RBA summarized the situation effectively when he
said that banks cannot be trusted and the recent events in CBA further strengthen this notion. The
development in CBA just showed that the problems with banking industry and its accountability
have never resolved, it was only kept under the carpet. Accountability is a very strong word and
the meaning of it must be properly understood from the perspective of banking industry (Kim
and Im, 2017).
With CBA it completely failed to comply with the concept of accountability. Accountability is
not only about the events and transactions but it is also about who, when, how and other such
important facets of each transaction and event. However, the CBA in its accounting has not
complied with the concept of accountability for long. In fact the annual reports of the bank even

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in the past has showed number of areas where proper attention needed to be taken to make the
bank more accountable towards its duties and responsibilities (Knight, 2019).
Banks are different from other business organizations since it has a huge role to play in the
overall economic development of a country. The economy of a country primarily depends on the
primary and secondary markets in the country. Both these markets cannot function efficiently
with an efficient banking system in place. Precisely for this reason banks are not given free hand
are subjected to the controls and provisions created by the Reserve Bank of Australia apart from
number of other legislation especially created for the banking operations in the country.
However, the annual reports of the company which contains the financial statements and other
accounting information do not properly reflect the accountability of the bank. Banks in Australia
must comply with the guidelines issued by the RBA and all the matters must be included in the
annual reports and financial statements of banks to comply with the guidelines RBA. Thus, the
lack of accountability on the part of CBA especially in respect of its financial planning has
started long back (The Conversation, 2019).
Conclusion:
Contemporary accounting issues are continuously showing us different facets of financial
reporting and how it could be better in the future. Understanding these issues will help us to
improve the process of financial reporting. This in turn would improve the ability of financial
statements to properly show the financial performance and position of an organization as on
particular date.

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References:
ABC News. (2019). CBA to pay record $700m fine over money laundering breaches. [online]
Available at: https://www.abc.net.au/news/2018-06-04/commonwealth-bank-pay-$700-million-
fine-money-laundering-breach/9831064 [Accessed 18 May 2019].
Abhayawansa, S. and Guthrie, J. (2014). Importance of Intellectual Capital Information: A Study
of Australian Analyst Reports. Australian Accounting Review, 24(1), pp.66-83.
Australian Financial Review. (2019). CBA still faces bread and butter banking challenges.
[online] Available at: https://www.afr.com/business/banking-and-finance/cba-still-faces-bread-
and-butter-banking-challenges-20180129-h0psw7 [Accessed 18 May 2019].
Botez, D. (2014). SUBSEQUENT EVENTS AND THEIR IMPORTANCE IN DRAWING UP
ANNUAL FINANCIAL STATEMENTS. STUDIES AND SCIENTIFIC RESEARCHES.
ECONOMICS EDITION, 12(19), pp.21-24.
Commonwealth Bank of Australia v Saggese. (2018). Victorian Reports, 55 VR(12), pp.241-271.
Danckert, S. (2019). Weak watchdog slammed for reluctance on enforcement. [online] The
Sydney Morning Herald. Available at:
https://www.smh.com.au/business/banking-and-finance/weak-watchdog-slammed-for-
reluctance-on-enforcement-20180927-p506fx.html [Accessed 18 May 2019].
Erbuga, G. (2015). ENVIRONMENTAL ACCOUNTING AND ITS RAPIDLY INCREASING
IMPORTANCE. Journal of International Finance and Economics, 15(2), pp.13-20.

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Kim, J. and Im, C. (2017). Reported Profits And Effective Tax Rate Following Accounting
Standards Changes Analysis Of Consolidated Financial Statements And Separate Financial
Statements. Journal of Applied Business Research (JABR), 33(6), p.1171.
Knight, E. (2019). ASIC goes nuclear on CBA ahead of royal commission report. [online] The
Sydney Morning Herald. Available at:
https://www.smh.com.au/business/banking-and-finance/asic-goes-nuclear-on-cba-ahead-of-
royal-commission-report-20190204-p50vj7.html [Accessed 18 May 2019].
The Conversation. (2019). Where the accountability problems started at CBA. [online] Available
at: https://theconversation.com/where-the-accountability-problems-started-at-cba-83809
[Accessed 18 May 2019].