Question

Overstatement of net income might have dire consequences on the financial position of a company. Financial results are made available to users of financial information for decision making therefore the misinformation might lead to improper financial decisions. Depreciation is one of the expenses that affect net income. The following extract from two employees of Msanzi PTY LTD , Sihle who is Accounts Payable clerk and Ntombi a cashier went as follows:

Sihle: Ntombi, could I get your Opinion on something?

Ntombi: Sure, Sihle.

Sihle: Do you know Mavis, the fixed asset clerk?

Ntombi: I know who she is, but I do not know her very well, why?

Sihle: Well, I was talking to her at lunch last week about how she liked her job, etc. You know the usual...and she mentioned something about having to keep two sets of books...one for taxes and another for financial statements. That can't be good accounting, can it? What do you think?

Ntombi: Two sets of books it does not seem right to me.

Sihle: It doesn't seem right to me either. I was always taught that you must use generally accepted accounting practice (GAAP) or IFRS to write up a set of books. What can be the difference between the two sets of books?

If you were Ntombi how would you respond? Do you think this is ethical? (15 Marks)

Answer 1

My response would have been “yes,but the gaap and ifrs are used for accounting books whereas the tax books are made on federal tax laws which could sometimes give different results but both these books should be conciled atend for proper accuracy

no it is not ethical to make separate books but as there are separate laws so different books have to be kept