I enjoyed the conversation on GAAP and earnings management relating to the case “Be Careful What You Wish For: From the Middle”. The conversation was brief, but got me thinking on the ethics of earnings management. GAAP accounting is to reflect in good faith the company’s actual financial status and present reality as is. It is not to present a manipulated set of numbers that paint a pretty picture. GAAP requires recording of revenue when there is persuasive evidence of an arrangement, assurance of collectability, a fixed or determinable price, and delivery. If Sarah recognizes revenue before delivery, she would violate GAAP and partake in channel stuffing. It would not be earnings management.
In my opinion, there is a fine line between ethical and unethical earnings management. For example, a company may have the choice to early adopt an accounting standard or wait until it becomes mandatory. Would it be unethical to delay implementation because the current standard makes earnings look better? I could argue the decision both ways. I could say the decision is unethical because there is intent to portray earnings in a better light than they would under the new standard. I could also argue it is ethical. The current standard reflects current earnings and it would be best to delay implementation until the release of a final draft or until all questions are answered. Implementing new standards can also be costly, and part of the reason to delay implementation could be to delay costs.
GAAP allows management to use discretion in areas where guidance is not black and white; however, I believe they allow discretion under the assumption that managers will be unbiased and act in good faith. As mentioned in class, if Sarah...
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...heart breaks. How would I feel if the individuals unable to obtain donations were my family members? How would I feel if I knew they needed medical supplies, but would not be able to receive them because someone like me upset a donor? I agree with the suggestions discussed, such as having companies realize what would happen if the IRS or the public were to find out donors were overstating donations. I do not like the idea of valuing items differently from the corporations. I would feel wrong knowing the not-for-profit was dealing with individuals who were deceiving others. I would be supporting unethical behavior, and I would not want to be associated with them. At the same time, if the not-for-profit were to disassociate themselves with companies who refuse to correctly value donations, the individuals with the greatest need would be the ones to suffer most.
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.
Now more than ever it is important to know what IFRS is and what AICPA and IMA are, especially pertaining to their ethical standards. IFRS or the International Accounting Standards Board is a group of highly experienced professionals in the accounting field. They deal with the setting of standards, as well as preparing, auditing or using financial reports, and educating future accountants. The AICPA or the American Institute Of Certified Public Accountants is a non-profit organization of American Certified Public Accountants (CPA) who create
While the majority of non-profit leaders, staff and volunteers are individuals of high moral character, it is possible they may act in an unethical manner. Individuals can make bad choices simply because they are unaware of the ethical complexities of their actions, and not out of maliciousness. Over the years, my fiancé has observed several additional situations of ethical dilemmas related to funding in non-profit management. These dilemmas are issues that all nonprofit leaders, governing boards, and donors should be aware of; they can occur at any moment. Having a sense of awareness of potential ethical dilemmas can be a significant step towards preventing unethical behavior.
One of the biggest ethical dilemmas that nonprofits are faced with in their fundraising world is tainted money. A nonprofit needs the money to support itself, but is the source of the money in agreement with the values and mission of the institution?
Is ethics concerning decision making merely an accepted way of life, a trust factor, or a concern for reputation? Is ethical thinking and decision making conclusions right for one individual or firm and wrong for another? Do ethics encompass a universal concept or do they reside solely in an individual realm such as one’s Id or ego as Freud claimed? Finally, do acts such as The Sarbanes-Oxley Act (SOX) create a sound solution to the problem of ethical or non-ethical decision making in public firms?
...ecognizes that technical compliance with particular GAAP rules may lead to misleading financial statements, and imposes an overall requirement that the statements as a whole accurately reflect the financial status of the company.” (Examiner Report, 2010, Vol. 3, p. 964) The choices made in accounting masked the real issues causing bankruptcy to become the only alternative for Lehman Brothers. Reporting accurate financial statements will allow counterparties to make knowledgeable decisions, regardless of the outcome. In 2002 the Sarbanes-Oxley Act was enacted by Congress as a reaction to the large amount of business related scandals, it consists largely of new rules and regulations for public accountant firms in an attempt to reduce fraud in accounting practices. The consequences of disregarding this injunction could result in fine and imprisonment, or both.
... tempted to falsely inflate earnings is to take away their personal gains, if the company's stocks go up. I believe that when upper level management has too much incentive based on personal financial gain, which is directly based on the performance of the company; it compromises their judgments. I think that upper level management should not be allowed to receive stock options or to even own stock in the company as the financial statements would provide a neutral, bias-free report. Management would have no reason to "cook the books." I also feel that any management who still decides to falsify documents needs to be held more accountable for their actions and receive tougher punishments. I think that these strict guidelines would help the people in the United States and people all over the world feel more confident in investing their money into the stock market.
When examining the effect of open marketing on the profession of accounting it is important to view it from three perspectives: the client's, the profession's, and society's. Additionally, two key areas that are affected by marketing must be addressed,
It is fair to expect employees, especially professionals like engineers and accountants to confront management over other directives that could be unethical because they have professional codes of ethics that they need to adhere to. These code of ethics should guide how employees and professional work regardless of the pressure from the management. The ethical duties should also be protected by the law such that management and employers are prohibited from forcing employee to act in ways that could be unethical.
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.
Acknowledging the importance of non-profit organizations in my life is easily done because of the unforgettable experiences had at a local organization and the impression it left on my life. As by taking part in a local non-profit organization, my mother and I were able to embark on a medical mission trip to Romania in 2006 and 2007. We set out to simply love and grow into a culture of people we knew nothing of, but yet still being drawn together by an awesome God and His mission for us as a people. Devoting our time and love, we also aided many in need with medical necessities: taking their blood pressure, addressing any problems they may have, and relinquishing all medicines that may be needed. Through my experiences, I’ve found that many non-profit organizations work to assist a multitude of hurting individuals through various methods of relief and invoke the initiation of volunteers into action. Although countless individuals have faced negative issues while being a part of such an organization, it is to be said that none can truly fathom the value of a non-profit organization that upholds dedication to the people it may serve, by way of various methods that provide great relief.
What does ethics have to do with accounting? Everything, since there have been some recent financial accounting scandals; a few examples being Xerox, WorldCom, Enron, which have generated much unwanted and unfavorable publicity for CPA's, including those working as controllers or chief financial officers for organizations.
Accounting ethics is primarily a combination of business and human ethics; the moral of theses ethics is to “serve the public interest.” As accountants and auditors they need to follow moral values and judgments in regards to accountancy. When working with fortune 500 companies they have a duty to also follow professional ethics. Accounting was first introduced by Luca Pacioli, and advanced by government and professional groups.
Deontological and utilitarianism are the two type of ethics system which characterizes ethical decision-making with respect to organizational culture and the accounting profession (Pointe Cast Presentation, n.d.). The paper presents in the following section the diverse approaches provided on the two ethical systems.
A qualified financial statement contains fair representations of an organization 's financial result, condition, and cash flow which is structured to ensure the organization is in compliance with GAAP . In the standard format, an organization should follow accounting principles to comply with internal accounting systems, disclosure rules, auditor oversight, and ethics, in the event, the above-mentioned principle does not meet, an audit failure may occur. An auditor failure may result as the request of clients and senior partners did not stand firm to refuse an unethical request from the clients. I will discuss a case of audit failure due to incompliance in the internal accounting system 's disclosure rule and firms ' right to refuse risky clients