Custom «Financial Accounting and Reporting» Essay Paper Sample
Table of Contents
The accounting objective of a firm is to provide: relevant and faithful representation of accounting information. This information is in turn used by both internal and external users for decision making process. Any organization strives to meet these criteria since external users of accounting information, who may include among others, investors, creditors and suppliers, use this information in deciding whether to either invest with the company or not. A manager of an organization would therefore be tempted to engage in unethical behavior so as to attract these users. Pressure would be to package the financial accounting information as attractive as possible(McConnell, 2011).
Compensation Tied Closely or Only to Financial Results
A company’s overall objective is to maximize profits, minimize loss and create more wealth for its owners. In order to reach and attain these goals, managers of organizations sometimes use unethical methods to remain at par with either existing competition or succumbing to pressure from individual with vested interests in the organization. When more sales of either goods or services are recorded, it reflects in the financial statements of organizations. The sales department would therefore do whatever it could to maintain previous outstanding records or even strive to break sales record. They would normally set their goals basing their results to quantity rather than quality of the goods or services rendered (Collins & McKeith, 2010).
A History of Unreliable Accounting Estimates
Accounting information is usually based on certain standard rules, that is, Generally Accepted Accounting Principles (GAAPs). The most sought after element of this principle is consistency of methods used while coming up with the information. An organization may distort the outcome of accounting information by constantly changing methods of producing information. For instance, an organization that is using “simple line method” to calculate depreciation is expected to commence with the method in subsequent years these therefore means that if in the next financial year the method is changed to “ accumulative method” then it basically means that the managers are trying to distort the outcome of the information. These changes lead to unreliable accounting information (Collins & McKeith, 2010).