Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
They are acting as agents of the company, and have a duty to improve company performance. Theoretically, 'taking a bath' can even buy a good company time, prevent a financial panic during a particularly bad year, and give the company time to reconfigure itself. But ultimately, boosting the value of a company is 'good' only if the accountant's primary responsibility is to shareholders and other individuals with short-term interests in the company.
In contrast, from a normative ethical standpoint, this practice of 'taking a big bath' creates an inaccurate portrait of the company's real economic status, and can hurt individual investors and employees over the long-term. The company's poor performance will eventually be revealed, innocent people will invest in a company that is structurally unsound, and employees will have to be let go when the full extent of the company's failure is revealed to the world.
Question 3: How can the agency costs of this practice be minimized?
The principles behind "taking a bath" are fairly easy to understand. It is the accounting equivalent of pointing to one's younger sibling and saying 'he did it,' or pointing out that 'my brother' did something even worse the...
In other words, rather than actually showing a profit or acting in a moral and economically sound fashion, taking a bath is making one's self look good by comparison with another bad actor, a straw man. In theory, a new CEO could be just as incompetent as the previous managers, but by 'taking a bath' during the first year of his or her operations, and then returning to generally accepted accounting practices in other years, he or she would seem to be doing far better than his or her predecessors. To minimize the negative agency consequences of 'taking a bath,' the company must clearly show how and why certain assets are being written off, to present a clearer picture of the company's financial situation to potential investors.
Works Cited
Kothari, S.P. (2004, June 18). Financial Statement Analysis. Sloan School of Management.
Corporate Accounting. Retrieved June 15, 2009 at http://ocw.mit.edu/NR/rdonlyres/Sloan-School-of-Management/15-511Summer2004/4B07B1A4-166B-4112-8122-C6EE460670D8/0/lec8.pdf
Yuan, Ye Chin. (2008, December 18). Big bath accounting. Moolanomy. Retrieved June 15,
2009 at http://www.moolanomy.com/1048/big-bath-accounting-fraud/
Works Cited
Kothari, S.P. (2004, June 18). Financial Statement Analysis. Sloan School of Management.
Corporate Accounting. Retrieved June 15, 2009 at http://ocw.mit.edu/NR/rdonlyres/Sloan-School-of-Management/15-511Summer2004/4B07B1A4-166B-4112-8122-C6EE460670D8/0/lec8.pdf
Yuan, Ye Chin. (2008, December 18). Big bath accounting. Moolanomy. Retrieved June 15,
2009 at http://www.moolanomy.com/1048/big-bath-accounting-fraud/
Accountancy is defined as a profession which is primarily responsible for keeping financial records, including records pertaining to expenditures and taxation. Accountants provide advice to clients, but they have a larger responsibility to the profession that transcends immediate client needs. [an Accountant Job Description] No matter how lucrative the client, the accountant must uphold the profession's ethical standards. That is why one of the most important qualities of any accountant
I think that proper networking and research on who is making quality products, and finding a vendor with a good track record of customer satisfaction would be crucial in getting a positive consumer reaction. Networking Networking is invaluable when you do not miss opportunities that are available just from people talking about your product. Some of the smaller stores are involved in fairs and events where products can be introduced to
Animals Thermoregulation There are a number of physical responses that occur in the a mammal's body when it is exposed to heat. It is important to not only understand what thermoregulation is, but the physiological and/or anatomical thermoregulatory responses that allow sustained exercise in horses. Understanding Thermoregulation Thermoregulation is the control of body temperature within certain limits even when the surrounding temperature is very different. This enables the body to function effectively and is
Financial Feasibility Bull Run, Virginia Pleasant Valley Estates is envisioned as an upwardly mobile community - located in Bull Run, Virginia - and targeted toward the young, single professional and young families. Cash Flow Statement Overview The cash flow statement constitutes a financial document, which details the exchange of cash between a business and the outside world while strategically demonstrating the in and outbound logistics. Flow is traditionally categorized as: flow "in" from Operations -
Another expample, as Dahlin (2007) notes, WorldCom was in the heart of one of the largest accounting scandals in history. Add to this the Wal-Mart effect of business in general, with companies having to compete with Wal-Mart's low costs, made possible partially due to their low wages, failure to pay overtime, nonexistent benefits, and resistance to unionization, and a ripple effect has been cast on the waters, causing other
Action The importance of creativity and innovation in the workplace is well documented, but the debate over nature vs. nurture continues with some authorities maintaining that people are born with attributes such as creativity and innovation while others argue that such attributes can be inculcated over time (Furnham & Heaven 1999). To determine the facts in these matters, this case study examines the relevant literature to gain some fresh insights