Introduction
The accounting function is so critical in a work environment. If properly done, the books of account could be accurate, meaning any decision made from these books of accounts could be right. Even though internal standards are meant to control the practice of accounting, companies, and firms continue to fall and topple with bad accounting approaches. One such case has to be the Silicon Valley Bank. This is one of the latest that was closed on March 2023. One of the recent case studies has shown how a slight deviation in accounting can bring a bank down to its knees.
The collapse of Silicon Valley Bank has awakened much to do with accounting. It has symbolized that bad accounting and other bad management approaches can be as dangerous as possible. No one thought Silicon Valley Bank could be declared under receivership like it today. To put this into context, a bad approach to accounting has a role to play in this. If banks and other businesses do not follow what happened to SVB, the same trend could be seen in the future. This is why the International Financial Reporting Standards need to learn from the case of Silicon Valley Bank.
Other banking institutions and businesses must be encouraged to work around the recommended IFRS without deviation. Deviating from IFRS is what breeds chances of failure and misunderstanding. It was proved that Silicon Valley Bank should have recognized some losses in the books of account. Failure to recognize these losses meant the company had some figures overstated in its accounts. Overstatement of these figures was adding more injuries to the bleeding company. These misinformed decisions have led Silicon Valley Bank to where it is today.
Goals to understand in relation to Silicon Valley Bank Collapse
One of the goals is to understand the value of accounting reporting. Silicon Valley has been publishing many types of reporting in compliance with the International Standards of Financial Reporting. These are meant for different stakeholders and shareholders. Accounting reporting is major intended for investors and other shareholders. It is also intended for stakeholders like supplies, creditors, and executive management. Accounting reporting involves preparing all books of accounts. In these books of accounts, there is proper capturing of a company’s financial transactions for a certain period. Financial reporting is done internally, but for some forms of businesses, financial reporting is also done externally.
Financial reporting is majorly applicable to private companies. These do not disclose their financial details to the public domain. However, investors and key shareholders need to know their financial position even for such companies. This is why they are forced to have some organized financial reporting that keeps everyone in the know. In the case of public companies, they are required by law to share their financial records with members of the public. It is in the interest of these public companies to know about the financial affairs of such companies. This is because investors and shareholders are from the public domain.
This is a goal I have been able to attain. I have learned about financial reporting and its value to a business. Financial reporting is not there just for the sake of financial numbers. Instead, it is there for a company to build a reputation with shareholders and other stakeholders. Silicon Valley Bank’s collapse has destroyed the reputation of the management. They should have taken an active part in regulation and ascertained there is proper accounting practice. This is why some losses ended up being ignored in preparing books of accounts. If management was concerned with the bank’s reputation, they would have ensured there was no deviation from IFRS in recognition of losses (Hanno & Stern, 2019).
My second goal was to understand the need for a system that standardizes financial reporting worldwide. Financial reporting can be interpreted differently in a system without standards. The approach to the preparation of books of accounts could be a difficult one to understand. Different accounts could be using their preference to prepare books of account as they think is the best for their business and profession. This is why it is quite important to have standards that regulate how books of accounts are prepared. These are standards helping to regulate how accounts approach books of accounts worldwide.
This is a goal I have been able to achieve. From research on the case of the collapse of Silicon Valley Bank, I have learned the internal body that regulates the preparation of books of accounts if they came up with International Financial Reporting Standards. These are standards that have refined my understanding of a company’s financial position across the world. However, IFRS compliance was a mission at Silicon Valley Bank. Accountants for the bank were not acting with utmost good faith toward the interest of shareholders. They ended up ignoring crucial details like losses resulting in the bank to where it is today (Schroeder, Clark & Cathey, 2022).
When a firm has adopted IFRS in its financial reporting, it gains more traction and stability in its business. It becomes easy to attract foreign investors and venture capitalists. They feel safe committing their funds to a company that observes internal standards for preparing books of account. This research taught me that adopting IFRS is not inevitable if a company wants to expand outside its local boundaries. If Silicon Valley Bank had taken time to be fully compliant with IFRS, it could still be in business today. The bank has lost its business and market share and will be subjected to new management to get it into its shoes. People who had loans and deposits with the bank might experiment with some inconsistencies with transactions under the receivership (DeGeorge, Li & Shivakumar, 2020).
My third learning goal was related to contingency theory in Silicon Valley Bank accounting. Like any other business function, the accounting function is also faced with changing factors. These could be emanating from the internal environment or the external environment. An internal environment could change due to employee-related factors, inventory and other supply factors, and management, among others. External factors could be forces emanating from a change in international regulators of the business environment. Regardless of the force, contingency planning is equally important for accountants.
My quest for knowledge on contingency planning in accounting got me to a secondary resource discussing this topic in depth. Contingency planning theory has been around for the last couple of decades. It has been tried and tested in different fields of work. Its utilization in business space has been attributed to many benefits. This is why accountants tend to be interested in using it to enrich their accounting work. An account who knows how to use contingency theory in work is poisoned for survival. This is why businesses look for well-informed accountants on contingency planning matters. These can be relied upon in case of changes in the market and international business environment (Otley, 2016).
Culture is one crucial thing that accountants have to mind in their exercise of contingency theory. There is a culture that each organization has. The culture that is exercised in an organization dictates how things are done. The culture can also control how accountants carry out their mandate concerning their work. Even as they embrace IFRS, contingency theory, and the need for financial reporting, culture comes in first. Accountants in a business must handle their job a certain way concerning the culture of the company they are working for. This is the only way to ensure shareholders’ interests are always protected.
My fourth goal was to learn about corporate social responsibility. Companies and businesses overlook corporate social responsibility from small to large. They often forget that everyone in business has corporate social responsibility; in such an environment where businesses assume that only big companies should exercise corporate social responsibility, many business challenges manifest. Challenges are suffered by the business and the immediate environment where external stakeholders operate (Zaman & Rezaee, 2021).
Corporate responsibility is for every business to exercise. The size of a business does not dictate whether it should exercise corporate responsibility. Provided a business is dealing with given customers and other external stakeholders, this gives enough reason to exercise CSR. There are many ways a business can exercise corporate social responsibility. It could implement by giving back to society, employing members of the immediate community, or even protecting the environment. A company or business can exercise all these at once. This is evident with more established businesses and companies. Start-ups and other businesses of small size often exercise one of just a few of these CSR activities.
As my goal of learning about corporate social responsibility, it came to my motive that it is done for more than just the benefit of the community and external stakeholders. There are so many benefits that a firm gets just by the exercise of corporate social responsibility. For instance, one way to improve a company’s reputation is through CSR (Kelley, Hemphill & Thams, 2019). Consumers support a company that always exercises some CSR in the market. This is because they feel a company needs to be in the business of making money alone. Rather, they feel that a company is concerned about their well-being and welfare.
My last goal was to learn about the influence of the external and internal environment in the exercise of CSR. When a business is mandated with CSR, internal and external forces are likely to affect how CSR is implemented. For instance, internal factors might be inhibiting the willingness of a company or business to engage in CSR. In such cases, the immediate community does not enjoy too much of CSR. A policy restricting an organization from sharing its profits will imply that such a company cannot exercise philanthropic CSR. This is where a company decides to give cash and other material possession to the community around it (Delbard, 2020).
The nature of work can also inhibit a company’s possibility of exercising CSR. A company manufacturing chemicals will likely end up with fumes and other effluents as by-products. In disposing of these fumes and effluents, they are released into air or water bodies. In the long run, the nature of work makes such companies destroy the environment they should protect. If there are no regulations on how companies should dispose of their by-products, this is how pollution starts. It starts when an organization has neglected its responsibility for waste management.
External factors must push companies into exercising CSR. One of these is the legal environment controlling a business. Policymakers need to be aware of likely compromises of CSR. They need to develop policies that demand CSR implementation from businesses and companies. This ensures there is optimal protection of the environment at all times as compliance. It also ensures that the community is not exploited but benefits from having a company or a business within their surroundings (Lu, Ren, Lin, He & Streimikis, 2019).
Conclusion
The accounting function is an interesting one to look at in depth. In relation to real-life case studies, one gets to understand the true and actual value of accounting. Many companies exercise accounting with regard to IFRS. If a company fails to comply with International Financial Reporting Standards, it risks collapse and other financial challenges. This was the case that happened to Silicon Valley Bank. A bank performing exceptionally well a few years ago has gone into receivership. This is something that people had not anticipated happening at such a time of the year.
Banks fail like any other business, but some failures are avoidable. A failure related to accounting can be avoided if accounting is done correctly. If accounting is not done correctly, the aftermath of all this is consequences like those faced by Silicon Valley Bank. Businesses need to take advantage of IFRS in accounting functions. This can help reduce instances where a company would fail because it does not have the proper accounting regulations in place.
REFERENCES:
DeGeorge, F., Li, J., & Shivakumar, L. (2020). A review of the IFRS adoption literature. Journal of Accounting and Economics, 69(2), 101285.
Delbard, O. (2020). Corporate social responsibility beyond philanthropy? Sustainable and responsible business in times of Covid-19. Managing a Post-Covid-19 Era, 258-265.
Hanno, D. M., & Stern, M. J. (2019). The effectiveness of integrated reporting on the quality of accounting information. Advances in Accounting, 44, 25-36.
Kelley, K. J., Hemphill, T. A., & Thams, Y. (2019). Corporate social responsibility, country reputation, and corporate reputation: A perspective on creating shared value in emerging markets. Multinational Business Review, 27(2), 178-197.
Lu, J., Ren, L., Lin, W., He, Y., & Streimikis, J. (2019). Policies to promote corporate social responsibility (CSR) and assessment of CSR impacts.
Otley, D. (2016). The contingency theory of management accounting and control: 1980-2014. Management Accounting Research, 31, 45-62.
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2022). Financial accounting theory and analysis: text and cases. John Wiley & Sons.
Zaman, M., & Rezaee, Z. (2021). Corporate social responsibility reporting and assurance: A review of the literature. Journal of Business Research, 128, 240-252.
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