Ethics in Accounting Issues in Financial Accounting Essay
- Length: 4 pages
- Sources: 2
- Subject: Accounting
- Type: Essay
- Paper: #4376621
Excerpt from Essay :
Ethics in Accounting
Issues in Financial Accounting for Businesses
The most important purpose of financial accounting for businesses is to represent the company and its assets as accurately as possible. This is important for the businesses to be able to have better control of their finances, for forecasting, and for many other purposes. Financial accounting is important for stakeholders so that they can understand the risks and possible future returns of their investment. Customers also demand to have accurate information about the company so that they can decide if there are a company with whom they wish to do business. Many different entities depend on the accuracy of financial accounting to make decisions about the business. This research will discuss key ethical, legal, and technological concerns that have arisen regarding financial accounting for businesses.
Business Ethics Today
Providing an accurate and honest representation of the company is the only concern of the accountant. Many entities depend on the accuracy and dependability of their data. Faulty data needs to faulty decisions and if the error was intentional in order to produce a certain image, the data can be a source of mistrust. It is important for accountants to maintain the trust of the entities for whom they work, stakeholders, and also to maintain public trust. Inaccuracy in accounting statements harms the overall image of the company. The company must be able to trust the integrity of the data that is presented by its accountants.
The highly publicized Enron case, which led to the conviction of its executives, changed the decision-making behavior of management, and created a major shift in what is considered ethical behavior within corporations (Bolt-Lee, 2010). According to the author of the study, the Enron case created a sense of heightened awareness of ethical issues regarding accounting.
In response to the Enron case, many companies developed their own ethics training programs. However, the results of these programs have been mixed. In a recent study, the least effective programs were found to be those that utilize coercive control mechanisms and focus on punitive measures for enforcement. These programs dictate ethical behavior, but they do not develop employees skills in addressing issues that arise in ambiguous situations (Bolt-Lee, 2010). The problem lies in differences in individual judgment.
Everyone agrees that it is wrong to lie about the numbers in the financial report. However, not every situation fits neatly into what is considered legal in the accounting profession. For instance, valuation of assets is one of the areas where accountants must often use their own judgment in regards to how they are reported. This is one of the most difficult areas in the development of standard ethical practices among financial accounts. Another similar area is how to report intangible assets. Many times the core issues are more of a matter of differences in judgment. This makes resolving ethical issues in financial accounting for businesses difficult.
Rebuiling Trust After Enron
After Enron, businesses needed to rebuild the trust of the public, their stake holders, and others along their supply chain. National and international governments, along with the assistance of major corporations, instituted programs and adopted new laws to ensure higher standards within the field of accounting. The need for tighter control and standardization in the accounting profession led to the development of many new technologies to help achieve these goals. One of the greatest changes in the accounting profession is transparency. Auditing standards were tightened and accountants are held to higher levels of accountability than they were in the past.
Technological and legal changes were designed to rebuild trust in the accounting profession. Organizations as well as institutes of higher learning emphasize moral decision making as much as…