Read the question and comment to the two peer posts in 100 word count each thats posted under the line below
Chapter 1 discusses ethics in business and accounting. The notes to the financial statements describe the accounting principles used by a company to record its transactions. Accountants apply the convention of conservatism when analyzing economic events and recording them. The following is a definition of conservatism:
In the application of accounting principles and the development of estimates, accountants should be conservative. Given choices between various methods of recording economic events, accountants should apply principles that result in revenues being stated at lower amounts versus higher amounts and expenses being stated at higher amounts rather than lower amounts. In general, accountants should apply accounting principles that would tend to understate revenues, net income and assets versus overstating them.
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?
By VInci: As a potential investor, there are several risks I would want to identify when analyzing a companies financial statement. First, I would want to look at year over revenue. Is the company making money? Secondly I would want to see if the cash flow is healthy. I think there should be a good balance of money coming in and going out. How many liabilities does a company have? That would be very concerning to me if they had a lot and I wasn’t sure what their strategy was as a potential investor. Assets can also be a risk. I wrote earlier in the week about investments that I experienced in my work career that did not pan out as well as planned. I am sure may companies have ‘assets’ in their financial statements that as an investor, I may think are bad ideas. Operating profit margin is something that I just starting to get exposed to at work. It is a new KPI for my business unit. This measures how well we manage revenue, expenses, pricing, etc. It makes you take into account the bigger picture versus just sales growth. 100 Word Count
By Audrey: When talking of ethics in a company, some of the most common issues of selecting accounting principles is honesty and integrity standards. In businesses, we heavily rely on professional individuals to conduct themselves with a high level of moral value and judgement. Companies who place ethics on a high level to ensure policies and continuous training to their employees to possibly avoid unethical issues within the company. Auditing plays a vital role in organizations. Auditors are there to help companies accomplish its objectives by bringing an organized, disciplined approach to evaluate and improve risk management, control, and processes. Accountants plays the role as overseers of the business. They are responsible for making sure they are reporting the organization’s finances clearly and according to recognized standards. Accountants are there to present facts accurately and refrain from slanting information in a misleading way. I do believe accountants have been properly conservative in the past few years. Working in the field of accounting and audit, I strive to make sure that I am presenting accurate numbers for the company. With all the regulations that set-in place, it is accountants job to guarantee values are being followed and consumers are protected. Although Accountants may have pressure of protecting the company’s finances, they don’t want to risk their jeopardizing themselves of facing unethical or legal activity.100 Word Count