Business and accounting with ethics

High School ・Accounting ・MLA ・1 Sources

The Importance of Accurate and Reliable Financial Accounting Statements

The postulation that Horngren, Hamson, Bamber, Best Fraser and Willet(2004) made was that financial accounting statements must be widely relied upon to provide accurate and suitable information for use by the manager with the aim of accessing the performance of the business's manager and for making their own economic decisions.

The users demand that these financial statements must contain exact information they have asked for and it must be reliable. There are some laid down rules about producing information. These rules are consistency and reliability for users.

The Issue of Creative Accounting

Regardless, some financial statement markers that are dishonest still try to distort the communication between the entities and the shareholders by altering the contents of the message in a process called 'creative accounting'. Creative accounting is best described by Merchant and Rockness (1994) as "any action on the part of management which affects reported income and which provides no true economic advantage to the organization and may, in fact, in the long-term, be detrimental." Despite the fact that there are contrary opinions on the acceptability of this accounting manipulation, it is nevertheless observed as reprehensible (Healy, and J. pg 365-383).

The Motives Behind Creative Accounting

There are several reasons for businesses and accountants to engage in creative accounting but as evidenced in the case of Enron, one of the largest companies in U.S.A the biggest reason is to conceal losses so that the business may continue running. The business seemed to be fine in the 1990s but it was abruptly declared bankrupt in 2001 December because of its creative accounting process. After the investors sought to determine the sudden collapse of a company that seemed to be doing fine it was established that the company had used creative accounting to conceal its losses. Therefore, many people were deceived into thinking that it was okay yet it was making losses.

Encouraging Ethics in Accounting

Evidently, ethics in the accounting field should be encouraged since without it many people are bound to lose their investments because of accounting malpractices such as creative accounting.

Works Cited

Healy, , P. M. and Wahlen. M J. . "A review of the earnings management literature and its implications for standard setting." Accounting Horizons. 1999. 365-383. print.

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