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Impression management importance
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Introduction Corporations usually communicate with shareholders through making disclosures within and outside the financial reports. The narrative disclosures in financial reports have become longer and more sophisticated in the recent years. With the increasing number of corporate scandals, it has been questioned that whether the financial reporting quality has been undermined by such disclosures. As the statement argued, ‘Disclosure outside the financial statements is only used to manage the impressions of gullible shareholders.’ which generally means that such disclosures mislead the shareholders through manipulating their perceptions. Disclosures outside the financial statements include the narrative disclosures within the financial report such as Chairman statement, CEO statements, future improvement plan, etc. (just excludes P&L accounts, balance sheets, cash flow statement together with associated notes) and those disclosures outside the financial reports which can be found on corporate websites, press release. Such as profit warning, RD activities, takeover intentions, capital expenditures, etc. In a broad way,impression management refer to the process that someone influences the perceptions of the others. In a corporate reporting context, it means “strategically display and present the information in a manner that is intended to distort readers’ perceptions of corporate achievements” (M-DB, p.415, taken from Godfrey et al, 2003). In the statement, it constrains this kind of readers to be the shareholders, more exactly, gullible shareholders. They are unsophisticated, may not have professional knowledge of the stock market thus unable to tell the truth or just simply believe what they heard. In my opinion, this s... ... middle of paper ... ... information or impression management? Journal of accounting literature, 26, 116–194. Merkl-Davies, D.M., Brennan, N.M., and McLeay, S.J., 2011. Impression management and retrospective sense-making in corporate narratives: a social psychology perspective. Accounting, auditing and accountability journal, 24 (3), 315–344. Merkl-Davies, D.M., and Brennan, N.M., 2011. ‘A conceptual framework of impression management: new insights from psychology, sociology and critical perspectives’, Accounting and Business Research, 41, pp.415-437 (M-DB) Rutherford, B.A., 2003. Obfuscation, textual complexity and the role of regulated narrative accounting disclosure in corporate governance. Journal of management and governance, 7 (2), 187–210. Yuthas, K., R. Rogers and J. F. Dillard. 2002. Communicative action and corporate annual reports. Journal of Business Ethics 41 (1-2): 141-157.
Brooks, L.J. (2007) Business & Professional Ethics for Directors, Executives & Accountants. Mason, OH: Thomson South-Western.
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
Bernardi, Richard A., and LaCross, Catherine C. "Corporate Transparency: Code of Ethics Disclosure." The CPA Journal (2005). Retrieved on 16 September 2006 .
Parker, L. D. 1955. Practitioner perspectives on personal conduct. In: Cooke, T. and Nobes, C. eds. 1997. The Development of Accounting in an International Context. London: Routledge, pp. 68-89.
Brooks, L., Dunn, P. (2012) Business & Professional Ethics for Directors, Executives & Accountants. 6th Edition. Thompson South-West.
Brooks, Leonard J. Business & Professional Ethics for Directors, Executives, & Accountants. Mason: Thompson South-Western, 2004. p227.
The New Zealand (NZ) Framework for Financial Reporting is in the process of changing since 2009, as a result of the review of the statutory reporting requirements in New Zealand by Ministry of Economic Development (MED) and the Accounting Standard Review Board (ASRB). The mainly recommendation was to remove small and medium sized companies from the statutory reporting framework (Ernst & Young, 2013, p.11). This New Zealand Framework for Financial Reporting 2010 (NZ Framework) was issued by the New Zealand Accounting Standards Board of the External Reporting Board (XRB) in 2011. The changes of framework pull open the NZ financial reporting standards that comprise NZ Generally Accepted Accounting Practice (GAAP) setting movement from ‘rule-based’ approach to ‘principle-based’ approach. Then comes to the question: Whether the application of NZ GAAP is supported positively by the NZ Framework with the appropriate underlying principles, or it preserved a largely ‘rule-driven’ approach? From my perspective, NZ Framework provides parts of applicable underlying principles in guidance of NZ GAAP but there are rooms for improvement.
Impression management is a social phenomenon that occurs in our daily life both consciously and unconsciously. “It is the act of presenting a favorable public image of oneself so that others will form positive judgments.” (Newman 184) Our first impressions of a person are always based on physical appearance and we compare them to the norms of our society. We can all admit to the initial meeting of a person and first noticing their age, gender, race, or other ascribed characteristics. Our cultural norms are ideas such that fat is “ugly” which are very different across societies and time. Also, impression management is an idea of how individuals interact in different social situations. “Sociologists refer to dramaturgy as the study of social interactions as theater, in which people (“actors”) project images (“play roles”) in front of others (“the audience”).” (Newman 169) This is our human need for acceptance and way of managing the impressions we give others and perform what we think people want to see. Our social life is governed by this concept but it only works with effective front-stage and back-stage separation. Our front-stage is the visible part of ourselves that we allow others to see unlike our hidden back-stage self.
Schofield (2014) researches the difference between public and private company financial reporting. For instance, a private company has fewer consumers reviewing their financial statements, whereas public companies could have multiple consumers reviewing financial statements. In addition, private companies typically have less specialized accounting personnel, whereas public companies will have several. Lastly, Schofield (2014), reviewed the number of amendments proposed and finalized to help benefit private companies financial reporting.
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
J., Gallagher, V. C., & Rossi, A. M. (2013). Impression management (IM) behaviors, IM culture, and job outcomes.Journal of Managerial Issues, 25(2), 154-171,106
CEO Kenneth Lay’s ambition for ENRON a company he had helped form went beyond the business of piping gas. Enron went to become the largest natural gas merchant in North America and the United Kingdom. But the reality is, this company business model never worked. This was a company that was so desperate to win Wall Street 's respect that it kept it stocks shares prices going up despite the losses it was incurring in order for executives to keep lining their own pockets. Over the course of this Case Assignment, I will identify the examples of financial reporting misconduct, I will explain the deontological as well as a utilitarian ethical perspective and lastly I will identify the stakeholders likely to be affected by that misconduct.
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ Profitability - This information comes from the Profit and Loss account. Were we can compare this year's profit with the previous years.
The journal inspects to what degree and how current consistency reporting of Fortune Global 250 organizations fuses with corporate administration intentions. Numerous multinationals, especially in Europe and Japan, have begun to pay consideration on board supervision and organizing of supportability duties, consistency, morals, and outside confirmation. While particular divulgences are not yet regular, some striking practices can be found. Hidden predicaments and complexities for supervisors in managing responsibility to shareholders and partners, and the part of examiners, were demonstrated. It was concluded that corporate administration in this setting has unmistakably turned into a point on which organizations have begun to offer data, and subsequently, endeavor to build straightforwardness and responsibility.
Peasnell, KV 1982, ‘The function of a conceptual framework for corporate financial reporting’, Accounting & Business Research, vol. 12, issue. 48, pp. 243-256, viewed 05 May 2014