The aftermath of hurricane Katrina and September 11th 2001 attack was misinformation about financial positions of companies and individuals and misappropriation of funds meant for disaster recovery. Insurance companies were forced to pay some compensation based on financial statements which were prepared from insufficient records. After the two disasters accounting regulating body set out on how accounting should be recorded and reported in case of such disasters.
Financial accounting is normally centred on the loses incurred during a natural disaster or a terrorist attack. Such events are recorded as extraordinary in the financial statement of companies and individuals. The recognition of terrorist acts in the financial statements should be treated as liabilities which can be measured if its impact is measurable in monetary forms. Attempts should be made by disaster recovery team to recover accounting documents for companies and individuals.
During the September 11th 2001 much records were lost but the association of accountants came up with a standard for recognising such acts and the standards provides that in recording such liabilities sufficient information which is reliable should be obtained and the information obtained should be based on faith, verifiable and neutral. There was fraudulent financial reporting as regards to the position of institutions and individuals. In some cases most companies misstated their financial position to make them good while actually before the disaster they were badly of.
The accounting standard board came up with the requirement for disclosure for loses of disaster. It provides that loses should be classified in a form of occurrence. The reporting effects of a natural disaster should be based on those natural disasters that are likely to occur. In the case of Katrina the government was compensating companies that made loses during the disaster. Most institutions and individuals lost their properties through the disaster, misinformed because proper accounting records were not recovered.
At one point forensic accounting was carried out to verify the proper financial position of some companies. However, fixed assets were recovered after the floods and were reported less the cost of reverting them to their original position. Intangible assets like good will were also recovered and were recorded to their original position. When such a disaster occurs good will of a company does not disappear. In accounting for good will and other assets the company should be able to show in the balance sheet the position of an intangible asset before and after a natural disaster. The date of the disaster should be quoted.
In cases of natural disasters and terrorists acts, accounting reporting becomes very difficult but the accounting association has provided guidelines for reporting in the financial statement. The terrorist act and a natural disaster are the likely events to occur in a future date again. Therefore its reporting should provide a provision in areas prone to disasters. Various governmental departments account for funds used during the disaster recovery process. In most cases it is found out that fraud and misuse of funds is rampant. At one point the military department was found to have misappropriated huge sums of money.
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