The purpose of financial statements
Financial statements are the primary instruments used in assessing the performance of a business and its managers (Gibson , 2013). In order to make well informed decisions, interested parties must be able to assume that a company’s financial statements are an accurate representation of its performance. Financial statements are used by customers, employees, governments, investors, lenders, and suppliers to influence numerous types of transactions. Investors can use financial statements to determine a company’s value as an investment. Governments can use financial statements to determine a company’s tax liability. Lenders and suppliers can use financial statements for determine a company’s creditworthiness. Good decisions rely on accurate financial reporting.
An article titled; The Dangerous Morality of Managing Earnings, by the National Association of Accountants (1990) as cited by Gibson (2013), highlights a broad range of questionable financial reporting practices that many managers at many levels suggested were acceptable in the name of meeting their objectives. According to the article, many managers stated that taking unproductive actions to boost short-term earnings was acceptable because the accounting...
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...ncial statements reflect its true state. Greed can drive individuals to take risks with other people’s money, and as such, only those with the highest moral fortitude should have governance over the finances of a publicly traded company. When companies with countless investors fail, many people lose a large portion of their life savings and their faith in financial markets.
Gibson, C. H. (2013). Financial reporting & analysis: using financial accounting information (13th ed.). Mason, OH: South-Western/Cengage Learning: Management Accounting, August 1990.
Gowthorpe, C., & Amat, O. (2005). Creative Accounting: Some Ethical Issues of Macro- and Micro-Manipulation. Journal Of Business Ethics, 57(1), 55-64. doi:10.1007/s10551-004-3822-5
Wilson, A. C., & Key, K. G. (2012). Enron: A Case of Deception and Unethical Behavior. Feature Edition, 2012(1), 88-97.
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