Ethical Responsibilities of Financial Reporting - Free Samples

Question: Discuss about the Ethical Responsibilities of Financial Reporting. Answer: Introduction: A vital part of being ethical in the region of accounting is giving the investors with effective financial data. An estimation can be undertaken that the companies that are sustainable are intrinsically ethical than the firms who neglect to contribute to the preservation of the planet. If these ethics are able to interpret in various facets of the organizations, then their financial statements should theoretically be more effective than the ones that are less ethical as the counterparts (Cheng et al., 2014). The organizations who do not think about acting in an ethical manner will be more influenced to post inflated or misleading numbers in their financial reports if it defines that the financial profits can be undertaken or they can otherwise meet any self-interest influenced desires. Effective ethics are discovered to be the biggest asset of the profession of accounting as their job means nothing if the results cannot be trusted. Conversely, the accounting standards are not always in the white and black and the managers have certain discretion as to how they want to handle with any number of circumstances. Due to the goal of each firm is to increase the profit, there are always a chance that a manager can be influenced to slant the numbers such that the probable investors are likely to invest money (Parsons, Moffat 2014). While this can lead to the effectiveness of the organization executives, this deception can even make the investors misinformed and decisions that are ill fated with their money. Therefore, it is essential to assess the company ethics to make sure that the potential for effective investments and even play a field for people who are risk averse who look for safer ways in order to invest their money that has been hard earned (Fernandez-Feijoo et al., 2014). In the current time period, the fraud related to accounting and other corporate scandals has rocked the equity market and their similar industries, defilement of the ethical responsibility and the status of the top level management and the episode aftermath or leading to the downfall of the large multinational organizations like Tesco, Enron and more. The paper concentrates on the ethical downfalls that lead to the disaster of the corporate auditors and accountants in order to fulfil their accountabilities for the purpose of financial reporting to the investors who are significant ones. They are vital for sustaining continuation of the capital markets and the capital. The data on the enterprise success is a key connection among the capital suppliers and the business firms who are making use of that capital. When the accountants are unable to provide the investors with the precise data that is authentic to their capital allotment decisions. The failure of the ethics that characterise fissures of fiduciary duties by the individual who grant the accountabilities but could not accomplish them to behave in an ethical manner. Research Questions The line of segmentation among the behaviour that is acceptable and the unethical behaviour is not a bright one as various individuals observe it in various areas. There are few of them that believe that individuals of a job in exchange for their income, independence and prestige that are rendered to have accountabilities in order to look after their stakeholders, clients and consumers without always being focused on their own incomes. Therefore, the research questions that has been framed are: Trevino, Nelson (2016) has reviewed that the management who oversees the reporting corporations is of the interest disclosing in their favourable performance to the investors who are vital to the sustaining contribution of the capital and overlook the fiduciary accountability to the investors. The auditor who are independent are influenced heavily by the enterprise management that they are unable to carry out their accountabilities to the user of the audited financial reports. The close relationship among the management and the auditors must be reduced in the favour of closer relationships among the investors and the auditors. The next factor has been creative accounting explains about the account regulators that have been swayed into manufacturing the regulations that are more favourable to the interest of the preparers of the financial report. Campopiano, De Massis (2015) has cited that two kinds of distortion and manipulations that the authors make to transform the viewpoint of economic practicality that have been shown in the financial reports of the parties who are interested. The next source has been from Lozano, (2015) who have been able to explain on the fact how the organizations have been able to influence the figures that have been disclosed in the annual reports. During the years, the corporate creativity has led to the development of new style of accounting. Therefore, the auditors requires to look for clarification and interpretation from the Accounting Standard Board and undertake strict judgement. Harjoto et al., (2015) has examined the factors that have been raised by the huge array of the accounting standards and the technical rules that have been marked in the current history of accounting. It has been debated that the profession of accounting is plagued by an incomplete and inferior notion of the quality in their work which focuses on the compliance with the rules of processing rather than the correspondence with the commercial results that are essential to construct the financial reports that are dependable guides for the individual activity. Blowfield, Murray (2014) has explained that the rising interest in the corporate social responsibility. This has led to more precise conservation in the accounting of the organizations in order to provide high quality financial data and even least inclined to undertake the unethical practices like earnings management. Usefulness of the earnings Lodhia, (2015) has explained that the key intention of financial reporting is to supply the lender and the investor with the data that provides the users the basis for selecting from the substitute uses of resources that are scarce in nature. Conversely, despite the purpose of the financial reports being clear, there are numerous ways with the help of which the authors of these reports may construe the data that can be helpful. Earnings are often regarded to be the precise element of the data that have been shown in the financial reports. Indeed, when the financial researchers express their knowledge for the future results, they look largely to the income rather than the other financial report elements like the sales, assets and equities (Young, Thyil 2014). Additionally, the managers compensation and hence many if the business decisions is reliant on the objectives of earnings. The real assessment of the earnings effectiveness is a method that has been undertaken plenty of time by various people. Conversely, even with the huge amount of time spent on examining the topic, there is still not a single straightforward solution with respect to the earnings optimization and its effectiveness. Such is the nature of the financial data, the figures that may be helpful to certain users of the financial report that may be irrelevant for the requirements of the other users. When the examination of the earning effectiveness initially started, the underlying principle was very simple: if various individuals looked to be making use of the similar information to construct the financial statements and this fraction of information could be framed as effective. In an examination of the earning usefulness concept, Fernandez-Feijoo et al., (2014) has seen that stock price revision is related with the disclosure of the income report and would thus give out answers that the data that has been shown in the income has been useful. The model framed by Herzig, Moon (2013) accomplished their goals by associating to the market value of the firm with numerous aspects of accounting data and their estimated realizations. This framework built off the general agreement that effective earnings numbers are hugely accountable for the usefulness of the financial reports. Conversely, it even looked in to the account that other common accounting data like the Book Value of Annual Returns and Equity. Due to the success model, there is a vast expanding body of the research that investigates similar issues by making use of the cross sectional regressions where the book value and the earnings act as the primary variables that are independent in nature. In order to understand any relationship among the usefulness of the financial reports of the firm and their ethics, a working explanation of what is ethics in the corporate world has to be explained first. Corporate Social Responsibility is a sort of ethics in the corporate world and is explained as the functioning of a business on a sustainable, desirable and dependable basis that looks after the ethical values, communities, environment and people. The essential features of CSR are inclusive of the corporate governance, workplace practices, social impact and environmental effect (ArAs, 2016). Unfortunately, it is certainly advantageous to the community for corporations to perform in a sustainable way it is not always in the best curiosity of the company to do so. Therefore, the companies who choose the practice sustainability risk taking financial impacts as an outcome. A debate has been made that the sole intention of a business entity is to optimise their profit for their shareholders. In this argument, it has been implied that any resources undertaken in doing anything outside of the maximisation of the profit is contradictory to the role of an economic entity (Sierra?Garca et al., 2015). There are some that go as far as to say that the managers who incorporate CSR policies in order to increase their own political, social and the career agenda in spite of undertaking a disservice to their stakeholders. There lies a key dilemma for the managers as they must manipulate the demands of their stakeholders while restricting public scrutiny with respect to sustainability in a rising environmentally aware community. Sustainability Declarations in Accounting The intention of accounting is to declare the valuable data about the firms in such a way that any party that are concerned can garner some kind of value. Conversely, conventional accounting often neglects to disclose the key data if it does not involve directly to the finances. As the corporations have the social and the economic impacts the declaration of the social and the economic data must be added in their company reports. By this notion, the company who do elect to include a collection of the social impact declarations are giving out more precise effective data than their rivals who select to reveal strictly the financial data. A question arises that whether or not the addition of the sustainability declarations is any parameter of the interest of the firm in giving out useful and comprehensive financial reports (Shafer, 2015). A huge amount of past researches are existent on the associated topics even though most of them make use of the financially dependent variables and therefore it is difficult to undertake a comparison of the results in order to attain a more definite answer. Indeed, certain researchers have declared positive correlation among the financial performance and the corporate social responsibility while the others have disclosed that negative correlation along with everything in between. It is generally gained that the intention of any financial entity is to turn into a profit. In this understanding there is a logical truth that the management behaviour will often rotate around the self-interest. It is this idea of self-interest that gives out the background for the idea of earnings management (Dhaliwal et al., 2014). Earnings management is even known as creative accounting, which is the practice of substituting the financial data in such a manner that abides by the accounting standard rules and even does not abide to the purposed spirit of the laws. Ethical issues in the accounting field is existent in many forms. In order to mitigate the unethical actions, various solutions has to be constructed. In this segment of the research, the researcher looks to discover the various sorts of strategies, approaches and designs that require to be assessed in order to attain the precise outcome for the thesis. Furthermore, the suitability of the gathered data for the paper is dependent on the kind of research methodology that has been framed by the researcher in order to attain the most suitable end result. The research onion has a crucial function in the research methodology in order to make use of the tools in an effective manner. Furthermore, the research onion has been found to be an effective mean with the help of which the author can gain the answers by making use of various tasks (Lawrence, Weber 2014). The various layers of the research onion is highly linked with the research procedure and mechanism that can be exploited by the paper. Additionally, the research onion aids in the precise utilisation of the research philosophy and the strategies and the time frame that has been used in this research. The research philosophy aids the researcher to understand the research essence by utilising the research paradigm. The philosophy of the research consists of the pragmatism, interpretivisim, positivism and realism philosophy. With respect to this paper, positivism philosophy would be used as this paper is associated with the presence of reality that can be understood with the help of the scientifically proven mechanisms. The research approach is one of the key aspects in order to conclude the paper and attaining the solution for the research. Chun et al., (2013) has cited that research approach aids in the recognition of the steps in order to perform the desired operations of the paper. Research approach mainly comprises of two kinds that are inductive and deductive approach. With respect to this paper deductive approach would be undertaken as this paper looks to assess the information with respect to the ethical responsibilities of financial reporting that would be gathered from various secondary sources. Research design aids the researcher the chance of coursing the paper in order to attain the distinct objective that is accordance with the objectives of the paper. The research design consists of descriptive, explanatory and exploratory research design (Malik, 2015). However, in accordance to this paper descriptive research design has been taken into consideration as it would explain the ethical responsibilities in financial reporting the data related to that in an explicit manner so that a precise idea can be attained. The process of data gathering refers to the process and the kind of data that has been used in this paper in order to have an idea about the research topic. As this paper concentrates on explaining the ethical responsibilities in financial reporting, secondary data will be used and this data can be collected from the Singapore Online National Library Board and the online library of the University of Portsmouth. The searches have been mainly based on the qualitative research processes with the help of recognising the ethics associated or the finance associated expressions by making use of an extent of the information sources like the commercial abstracts, academic and the process of internet sourcing engines. The researcher has followed the code of conduct in order to undertake the job in the process of collecting the data. The secondary data has been gathered from authentic sources and therefore ethics have been maintained. The evaluation of the data has been undertaken by understanding the concept of ethics along with its importance and dilemma and how it has an effect on the financial disclosure and the profession of auditing. Ethics allude to a framework or set of accepted rules reliant on moral duties, values and commitments that demonstrates how it is needed to carry on within a constituted society or body. Ethical behaviour alludes to undertakings in firms that has been regarded as reasonable, simply, well beyond the established law and significant directions (Kim et al., 2015).Ethics can be characterized as the branches of rationality concerned about esteem with respect to human behaviour relating to the rightness and misleading quality of activities and to the integrity and wrongfulness of the actions and results of such activities. Ethics is associated with the issues, for example, what individuals face during their process of decision making. Ethics is likewise the investigation of ethical quality keeping in mind the end goal to clarify particular guidelines and rule that decide right and wrong for any given circumstance (Noronha et al., 2013). Ethical quality is more concerned about standards, qualities and convictions that are a piece of a social process, which characterize right and wrong. Ethical quality it could be said that it goes before morals and the two associations and individuals have ethical quality to a specific point. Fortification of professionals and the clients alike. Elucidates the principles and accountabilities of the profession. Development of the profession profile. Inspires and motivates the practitioners It provides strategies on conduct that are acceptable. It increases the extent of awareness and perception on issues. Develops consistency and quality Fundamental Principles of Ethics: Code of ethics for proficient accountants has endorsed five (5) key standards to be clung to by accountants. These are as per the following: Integrity: A skilled accountant ought to be legit and straight forward in all expert and business relationship (Watson, 2015). Objectivity: A skilled accountant should not allow predisposition, conflictive intrigue or undue the effect of others to supersede capable or corporate judgment. Professional Competence and Due Care: A skilled accountant has a ensuing with responsibility to keep up effective learning and aptitude at the extent required to assure that a client or business gets able experienced management in view of recent developments practically speaking, enactment and processes (Attig et al., 2013). A skilled accountant should act in a determined manner and according to the appropriate expert and specialized framework when giving effective management. Confidentiality: A skilled accountant should look at the confidentiality of data procured as an outcome of expert and business relations and should not unveil any information to outcasts without legitimate and distinct expert unless there is an existent of lawful or skilled authority or responsibility to uncover (Zadek et al., 2013). Confidential data gathered because of skilled and corporate relations should not be exploited for the entity favourable position of the skilled accountant or outsider. Professional Behaviour: A skilled accountant should look to conform to pertinent laws and directions and should maintain a planned expanse from any operations that destroys the calling. Ethical Challenges in Auditing Profession There are five sorts of ethical threats related with the profession of auditing. The ethical dilemmas occur as an after-effect of these dangers: Self-interest threats emerge of from having monetary enthusiasm for customer. This monetary intrigue can be for oneself or for other family members. The IFAC code of ethics features an extraordinary number of territories in which a self-interest threats that may emerge as: work employment with client, personal relationship, accomplice on customer board, money related premium, family or individual relationship, higher charges, blessings and friendliness, contingent fees, overdue charges, loans and guarantees (Martnez?Ferrero et al., 2015). A self-review threat arises when the auditors needs to re-assess work finished without anyone else or if the external auditor instructed on the execution with respect to the budgetary detailing arrangement of the customer (Jo et al., 2015). This may happen when the auditor is made a request to advance the customer's position or speak to them somehow. In this circumstance the auditor would need to be one-sided for the customer and hence cannot be objective. This could happen if the customer requested that the auditor advance their offers for a stock trade posting or if the customer asked the examiner to speak to them in court (H?bek, Wolniak 2016). The wellsprings of promotion dangers incorporate legitimate administrations, unexpected expenses, and corporate fund. A familiarity threat occurs when the auditor is disproportionately trusting or thoughtful of the client due to a nearby connotation with them (de Bakker, 2016). This can be on the factors that a close friend or family of the auditor functions in the vital financial aspect for the customer. An intimidation threat emerges when individuals from the confirmation group have motivation to be intimidated by customer staff. The wellsprings of intimidation threat are: close business relationship, suit, family and individual relationship, affirmation staff individuals move to work with customer. A management threat is distinguished in the Accounting Practicing Board (APB) ethical guidelines as opposed to in the IFAC code (Mwangi, Jerotich 2013). A management threat emerges when the review firm embraces work including making judgment and taking choice that is the duty of administration. Conclusion The professional accountant has a crucial role to perform in the maintenance of the reputation of the accounting profession by sustainably looking at the public interest in any given circumstances. The process of unethical financial disclosure can generate the creation of legal actions for the breach of the criminal and civil law, cancellation of the licensing practice with their attendant results and loss of confidence in the financial report. The auditors are anticipated to undertake their standard process in a careful manner, punctually and diligently with respect with their instructions and the suitable auditing standards and the processes by taking into account the virtues that have been time honoured with respect to independence, integrity, objectivity, confidentiality and preserving the technical and professional standards, due care and competence in order to improve the dependability of the financial information. The presence of personal interest must not be permitted to over ride these duties and actions. In the conclusion the potentiality of the decentralised economic system for the effective service of the society has been disrupted by the faults in the process of corporate governance that have provided them extreme authority to those auditors and supervisors who are suitably like the domestics of the owners. When the supervisors have power over the auditors who have been independent and the performance of the board of directors and membership does not have the same potential. The framework of corporate governance in the Britains 1845 Companies Act states that the stakeholders who have been governing the auditors and the board and the board managing the appointed managers look promising. Till the time of the fundamental transformations in the corporate governance have been constructed and can be expected more ethical failures in the corporate financial reporting, increased scandals that are associated with the finance and additional rules to manage the behaviour of ineffectively mot ivated auditors and managers and even more concerned about the ethical failure. It is therefore recommended that the manager and the auditor should be courageous and bold enough to discontinue restricting from any engagement that may lead to threat or risk to their integrity and make their reputation bad in front of the others. There is scope of future work with respect to this paper as it has been observed that ethical responsibility in the procedure of financial reporting will alter along with the changes in the economy and the market. Therefore, the process of financial reporting would even change and thereby would have an impact on the ethics. 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