Ethical issues business financial reporting Essay

Ethical issues business financial reporting - Essay Example In this type of manipulation when preparers of financial reports become aware of a proposal for alteration of accounting regulation which they consider will be unfavorable for them, they resort to various means to stop the change or bring a change which will serve their purpose. The intention of the regulators is to make financial reports useful to all users. The financial teams are intermediaries between the users and regulators. They have the freedom to interpret the regulation. At times they interpret the regulations in a manner that may suit their own views. This cannot be considered justifiable to the users. Clear and well designed financial reports shows that the preparers of the reports have abided by the law and followed the regulations. Often the accounting regulations are poorly formulated or not enforced properly. These loopholes lead to manipulations (Gowthorpe & Amat, n.d.). At times entries in accounts have certain degree of estimation or prediction, the estimate might be too optimistic leading to errors. Even if an outside expert is consulted the valuation can be manipulated through the manner in which he has been briefed by the accountant or his personal nature (i.e., optimistic or pessimistic). Balance sheet may be manipulated by entering artificial transactions. This is done by entering into other related transaction with a third party. For example, an asset is sold to a bank and then leased back for the rest of the life. The sale price in this arrangement is set at a price above or below the current asset value. The difference is adjusted by increased or reduced rentals. Genuine transactions are also timed to provide a favorable impression. The scope for choosing between various accounting methods should be reduced. There should be consistency in the method that the company is adopting with the intention that he may not switch over to another accounting method in another year to suit his purpose. Companies