Economic sciences/7. Accounting and audit

PhD (Economics), Ass. Prof. Korolyuk T.M.

Ternopil Ivan Pul’uj National Technical University, Ukraine

Risk nature in accounting

Financial-economic situation of the enterprise depends mainly on the fact, in what extent all types of the risk factors are taken into consideration during the process of management. Specific feature of the native enterprises functioning is that they constantly undergo the impact of general economic and special factors of risk, general economic factors of risk being typical for the entrepreneurial activity of any economic environment. At the same time specific factors are the characteristics of the native enterprises. From the other side, the whole complex of risk factors is divided into two groups: 1) “predicted” factors, possibility of arising of which is known from the economic theory or business experience. At the same time, what factor and when it arises is unknown; 2) factors, which resulted because of the lack of complete information and variability of the enterprise external environment, which cannot be predicted.

Risk is a multiple notion, which is often associated with losses, disadvantageous outcomes. But this is only one interpretation of the risk treatment, as risk and profit are directly dependable: higher profit of the enterprise activity is always accompanied with the high level of risk. Y. A. Shumpeter in the book “Theory of economic development” writes, that, if risks are not taken into account from the point of view of management activity, they are, on the one hand, the source of losses, on the other – the source of profits. One may make decision, which undergoes less risk, but the obtained profit will be smaller as well. Greater risk results in the possibility to obtain higher profit [1].

Uncertainty should be treated as scanty or scarce information on any activity or its outcomes, not full enough knowledge of something. Pablo A. Guerron-Quintana writes, that “the concept of uncertainty goes beyond those situations in which we cannot establish the likelihood of events. It also includes cases when we do not even know the outcomes” [2, p. 11]. Risk is sufficient possibility of the event to occur in the conditions of the environment uncertainty of the enterprise functioning, which is the subject of quantitative and qualitative estimation. Risk is characterized by the availability of uncertainty and is the variety of uncertainty, when the probability of the event appears and it can be found. The notion of risk is always connected with the possibility to choose this or that option for the events development. Risk is inseparably connected with the notion of alternative.

The main principle of decision-making by the enterprises is their seeking for greater profit; here the amount of possible profit is in proportion to risk. Users of accounting information make many decisions, when some possible options in the conditions of uncertainty of the market situation are available. Sensible and fair treatment of information makes possible to identify reasonably the main characteristics of risk, in the accounting in particular: 1) risk uncertainty. The task is to decrease the risk outcomes if possible, to find means for minimization of unexpected losses in advance; 2) risk alternative. Risk alternative in accounting is specified by the standards of accounting, which give the enterprise the right of choice (in some cases): method of estimation; the way of presenting information in financial statements; methods and ways of presenting accounting objects, which make possible to describe more clearly the results of its activity and the financial position; 3) contradiction of risk in the accounting is caused by the capital market effect on the content and the size of financial statements. That is why the enterprise faces very complex problem: to meet the interests of all users of financial statements.

The problem of accounting risks is not studied enough in both, accounting itself and the science on risks. But it is worth being stressed, that some scientists investigate this problem. Thus, famous American economist L. A. Bernstein notes: “Accounting risk is caused by the human factor as to its nature, and inaccuracy, which is the characteristic of the accounting in whole. It occurs because the alternative principles of accounting are available, as well as not clear criterion, which defines them, and, correspondingly, not clear standards in practice. The lack of guarantee as to the standards or methods and ways of their application can result in the variety of results, and thus, high level of uncertainty” [3, p. 56]. Evidently enough, risk is not specific in accounting; it is present in all professions and often seen closely related to expected or projected benefits. Risk is expressed quantitatively as the probability or degree of loss. Mathematically, probability is a quantitative measure. Assumed risk, however, is not just mathematics but also a function of qualitative factors, such as a nature of the counterparty (a person, company, government or other entity), characteristics of the transaction and specifics of the exposure [4, p. 5].

Risk in the accounting system is of subjective-objective nature. On the one hand, it is connected with the choice of some options (alternatives), calculation of probability of their outcomes (if it is possible). That is, risk is realized through the subject – a person, who makes decision. People can make mistakes, in decision-making in particular. Besides, different business entities have different aims in their activity, different legal status. All this causes the availability of the subjective risk component in accounting. On the other hand, probable nature of economic activity of business entities, lack of possibility to predict clearly its outcomes, uncertainty, caused by the objective, independent on the subject environment factors, stipulate the availability of risks in the accounting of the objective component.

Thus, subjective-objective nature of risk in accounting is specified by the fact, that it is initiated by the processes of both, subjective nature, and those, the availability of which finally does not depend on the desire and consciousness of people.

References:

1. Shumpeter, Y. A. (2007). Theory of economic development. Moscow: Eksmo.

2. Guerron-Quintana, P. (2012). Risk and Uncertainty. Business Review, Issue Q1, 10-18.

3. Bernstein, L. A. (1996). Analysis of financial statements: theory, practice and interpretation. Moscow: Finance and statistics.

4. Chorafas, D. (2008). Risk accounting and risk management for accountants. Oxford, Cima.