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Principles of accounting
Principles of accounting
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Ethical and Legal Obligations
Ethical and legal obligations apply to all members of society. As one in society, the obligation to act in an ethical, law abiding manner on a daily basis is vital to the integrity of daily life. Many professions have their own code of ethics. Financial reporting is not exempt from such ethical and legal standards. One’s lively hood depends on decisions made in the business world. Business transactions are done daily and can impact one’s economic stability. Trust is placed in the hands of corporate America and an obligation of financial reporting to reveal a complete honest and legal picture of an entity’s accounting practices is important in attaining trust. This paper will discuss the obligations of legal and ethical standards of practice in the financial spectrum.
According to Marshall, McManus and Viele (2004), accounting is “the process of identification, measurement, communication of information about a business for the purpose of making decisions and informed judgment” (p.3). Decision makers look at balance sheets, income statements, changes in the owner’s equity and cash flow statement as documentation of the viability of an entity. Misrepresentation of the financial statements can place doubt of profitability in any company. The need for accountability and regulation of accounting practices is important in preserving trust in the business community.
Entities have ethical and legal obligations in financial reporting. To ensure these obligations are upheld, agencies have been developed to regulate standards of practice. Th...
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...rtheast Business & Economics Association, p.360-366. Retrieved on October 19, 2008, from EBSCOhost database.
Financial Accounting Standards Board. (2008). Facts about FASB. Retrieved on October 17, 2008, from http://www.fasb.org/facts/
Marshall, D. H., McManus, W. W., & Viele, D. F. (2004). Accounting: What the numbers mean
(6th ed.). New York: McGraw-Hill.
Public Company Accounting Oversight Board. (2008). Our mission. Retrieved on October 17, 2008, from http://www.pcaobus.org/index.aspx
U.S. Securities and Exchange Commission. (2008). The investor’s advocate: How the SEC protects investors, maintains market integrity, and facilitates capital formation. Retrieved on October 17, 2008, from http://www.sec.gov/about/whatwedo.shtml
Ethics plays a vital role in developing accurate and high quality financial statements for management, financial institutions, and investors. As management utilizes financial statements to make decisions regarding the operations of the business, it is necessary to review accurate financial statements to make strategic decisions about the future of the organization. Investors and financial institutions require accurate financial statements to make informed decisions upon whether to invest funds into the organization or the wisdom of lending funds to said organization.
The goal of the Codification is to simplify the organization of thousands of authoritative U.S. accounting pronouncements issued by multiple standard-setters. To achieve this goal, the FASB initiated a project to integrate and topically organize all relevant accounting pronouncements issued by the U.S. standard-setters including those of the FASB, the American Institute of Certified Public Accountants (AICPA), and the Emerging Issues Task Force (EITF)
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).
References Financial Accounting Standards Board. 2006, July 6 -. Conceptual Framework for Financial Reporting. Financial Accounting Series, 1-55. Wolk, H., Dodd, J., & Tearney, M. (2003).
Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Financial accounting (6th ed.). Hoboken, NJ: Wiley.
Hoggett, J., Edwards, L., Medlin, J. (2008). Accounting, 6th Edition. John Wiley & Sons Australia Limited.
Marshall, D. H., McManus, W. W, & Viele, D. (2002). Accounting: What the Numbers Mean. 5th ed. San Francisco: Irwin/McGraw-Hill.
PCAOB members should not consist of all individuals from the investment community as past experience with members of one exclusive community has proved to be ineffective in accurate oversight of business financial practices. The purpose of Public Company Accounting Oversight Board (PCAOB) is to protect investors and the public by ensuring that audit reports of U.S Public companies are independent and accurate. The selection of members must include and assessment of integrity and competency that is scrutinised for the public interest. Part of that scrutiny is the make up of the board members, their professions, experience
The PCAOB has the authorization to provide rules governing the following areas; ethics, independence, and quality control for any registered accounting firm...
Accounting ethics has been difficult to control as accountants and auditors must keep in mind the interest of the public while that they remain employed by the company they are auditing. The accountants should take into account how to best apply accounting standards when company faces issues related financial loss. The role of accountant is crucial to society. They serve as financial reporters to owe their primary constraint to public interest. The information provided is critical in aiding managers, investors and others in making crucial economic decisions. An accountant is responsible for any fraudulent financial reporting. Some examples of fraudulent reporting are:
Waqas A, 2013, ‘Analysis of Factors Present in Financial Reporting Standards Leading to Manipulate True & Fair View of an Entity’s Financial Statements’ Social Science Electronic Publishing 2014, KPMG p.1
Likewise, non-adherence to the ethical and legal principles of accounting can influence the business negatively. Notably, companies that are involved with fraudulent financial reporting are on the receiving end of direct impact of such practices in both the short and the long run. The impact may not only be in the form of financial loss but it can be in the form of reputational damage also. Notably, banks who meet the funding source of companies involved with fraudulent financial reporting will be in the verge to lose its investment. It has been noted that in general scenario, fraudulent financial reporting is conducted with the intention to resent an improved positioning of the business in front of the investors and other stakeholders. However, in the process it affects the quality as well as integrity of the process of financial reporting of the business. Furthermore, since fraudulent financial reporting is against the objectives of any business, it will certainly lead to jeopardizing the accuracy of the financial results in a considerable manner. Accounting professionals associated with the development of financial reports in any business may also be at risk of losing their license once caught on the grounds of fraudulent financial reporting. It has also been observed from secondary
Having an advance directive will help the medical staff in making the right and ethical choice for me. There are ethical obligations that doctors owe to their patients, respect to the patient right to refuse medical treatment by their values and beliefs. The procedure of making advanced directives provides legal paper to the patient to settle on an educated choice, which likewise permits the doctor to settle on an ethical choice. When the right to autonomy conflicts with healthcare provider’s attempts to give care and beneficence, it is the provider’s legal and ethical obligation to allow the patient to exercise his or her autonomy. At the point when state law does not approve a family member as a guardian to make a health care decision, in
...l, 1993). It was Scott’s idea that unity in accounting can be achieved if external financial statements users are also considered in the equation and the whole idea could gain popularity, little did Scott know that FASB by 1978 would identify the first objective of financial reporting as “Financial reporting is not an end in itself but is intended to provide information that is useful in making business and economic decisions" (FASB, 1978). The second level of Scott’s framework was the pervasive principle of justice, which prescribed unbiased accounting rules that are fair to all users of the financial statements. Scott identified justice as the foremost duty in the financial statements to address the concerns of the public regarding false and misleading financial disclosures (Lawrence et al, 1993). The third level of Scott’s framework was the principle of truth and