Question

for this assignment discuss the importance of ethics in financial accounting.what issues many arise if ethics is compromised? how would this impact the company internally,how would it impact the external users such as investors,creditors,government?

Answer 1

Accounting ethics is concerned with how good and moral decisions can be made about the planning, analysis and disclosure of financial information. A series of financial reporting scandals brought the issue to the fore during the 1990s and 2000s. Knowing some of the problems raised in accounting ethics will help you make sure you understand some of the consequences for the activities you are doing in your own business.

Over the last two decades most accounting controversies have focused on fraudulent financial reporting. Fraudulent financial reporting is the business management's misstatement of the financial statements. This is generally done with the intention of misleading investors and maintaining the share price of the company. While the benefits of false financial reporting can in the short term raise the stock price of the company, in the long run there are almost always ill effects. This short-term emphasis on the finances of corporations is sometimes called "myopic management."

The most common ethical problem in accounting at the level of individual workers is the misappropriation of the assets. Misappropriation of assets includes the use of company assets for any reason other than the needs of businesses. Also known as theft or embezzlement, misappropriation of assets can occur at almost any company level, and to almost any degree. A senior level executive, for example, can charge the company a family dinner as a business expense. At the same time, a manufacturing line-level employee can take supplies from home office for personal use. In both cases there has been misappropriation of the properties.

Disclosure breaches are mistakes of legal omission, as a subtopic of fraudulent financial reporting. Although deliberately documenting transactions in a way that is not compatible with generally accepted accounting principles is considered to be fraudulent financial reporting, failure to disclose information to investors that might affect their investment decisions in the business could also be considered fraudulent financial reporting. Company executives have to walk a fine line; preserving the proprietary information of the business is vital to the management.