Corporate Governance and Year-End Adjustments

Corporate Governance and Year-End Adjustments
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Institutional Affiliation

Corporate Governance and Year-End Adjustments
The end-of-year adjustments have an impact on the income statement and the statement of financial performance. The importance of adjusting the end-of-year balances is to post the balance of the retained earnings account to match with the one reported on the statement of retained earnings and hence all temporary accounts at the beginning of next year will start with a zero balance.
A company makes year-end entries such as closing inventory which is a reduction in the income statement and a current asset in the balance sheet (End of Year Adjustments, 2013). Accruals are unpaid expenses included in the income statement and the balance sheet as liabilities. Prepayments, on the other hand, are advance expense payments and are posted in the income statement as current assets. Interest payable is a finance cost included in the statements depending on the amount paid. Depreciation is also a possible entry which is charged on the assets of the firm and the current year depreciation is an expense included in the income statement.
An organization may take various steps to ensure compliance with corporate governance. The steps include approval of corporate strategies by the board and the senior management including the allocation of capital for long-term growth. Secondly, there is the development and implementation of corporate strategies to produce sustainable value creation.

Thirdly, the audit committee and the management should give reports that fairly present the company’s financial condition. Lastly, the board and the audit committee should restrain the relationship between the auditors and the management to ensure independence.
The principles put in place to ensure a company has proper corporate governance are transparency, voting and shareholders meetings, and board structure and process.
Information risk is the possibility that the information availed to the company’s stakeholders is misleading. The costs of information risk include overvaluation or undervaluation of the company’s share value, overpayment of dividends may lead to the collapse of the company, and the company may fall into a financial crisis.

References
End of Year Adjustments (2013). Retrieved from: Institute of Certified Bookkeepers. http://www.icb.org.au/out/7042/EOY%20Support%20Note%2010%20EOY%20Adjustments.