What are some of the ethical issues of selecting accounting

What are some of the ethical issues of selecting accounting principles for a company? Do you believe accountants have been properly conservative in the past few years with financial statement presentation? Why? As a potential investor, what risks do you want to identify with financial statement analysis?

Solution

Every company , particularly the companies whose shares are publically traded communicate with creditors , traders etc through their financial statements. Following are the ethical issues in selecting accounting principles:

1. Fraudelent financial reporting : It is a misstatement of the financial statement by company mamagement.

2.Disclosure Violations : These violations are ethical ommissions.

3. Misappropriation of assets: Management misappropriate the assets to show the higher profits of the organisation

No, accountant have not been consevative in the presentation of the financial statements because of the changing requirements of the investors .

Investors wants to assess the following risk through analysis of financial statements:

-Comparative analysis of growth: Every investor must be interesed in the growth of the company he want to invest in. so financial statements gives him this information.

- Ratio Analysis: An investor can calculate various ratios like liquidity ratio, debt equit ratio etc to compare company\'s data with the industry\'s average.

- Past trends of dividend : Through financial statement past dividend trend can be analysed.

-Cash flow: Cash flow can be check to ensure the liquidity of the funds.