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Ethics In Accounting

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Ethics and Legal Responsibility in Accounting

The profession of accounting has become spotlighted by the events in recent years including namely Enron. The ethical behavior of businesses is becoming increasingly scrutinized at every turn. Thus it is important to specify the nature of conducting accurate and ethically in accounting and how this can be of subsequent benefit to the company as well as the business world in the long run.

The definition of accounting according to Webster's dictionary is "the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results." The purpose of accounting is to provide financial and business information to possible investors, current investors, and management so they can make accurate decisions concerning the company. There are four basic statements that accounting provides: the Balance Sheet, the Cash Flow Statement, the Owner's Equity Statement, and the Income Statement. These four reports provide the perspective of how the organization is maintaining financially. The basis of many decisions will stem from how profitable an organization is and thus it can be tempting to increase the bottom line so the company looks better on paper than what the situation is in actuality. The importance of accounting is that it gives investors the confidence in making a well informed decision and though the accounting reports don't equate to a sure thing these reports aid in the flow of business. Thus without accurate accounting there would be no way an investor could feel safe or educated in providing monies to an organization. Thus accounting promotes the flow of business. Accounting also is hinged on various people's monies and so it must be performed with accuracy and integrity. There are many people's lives and financial well-being at stake and thus there should be a considerable amount of integrity and ethical behavior utilized in accounting.

The purpose of accounting is expressly providing financial information of an organization so that others can make informed decisions on the company. This includes current stockholders, future investors, and management. Thus the accurate reporting of accounting figures can have a dramatic impact on many people in different positions. The effect is also primarily financial and thus the livelihood of many people resides in accurate accounting practices. The problem for many stems from the ethical behavior of an accountant as opposed to the job security in an accountant thus many find that their jobs are in a more stable position if they can increase the bottom line of the company. Thusly if there were no conflict with what is ethical there would be no dilemma, but many accountants are in jeopardy as well as many businesses if they are seemingly below expected profit margins or worse begin to lose substantial monies. Thus to keep management, current investors, and future investments happy it can become tempting to spruce up the bottom line.

There is more than just an ethical obligation in accurate reporting of accounting statements there is a legal responsibility. Thus the government and those in the profession of accounting have formed various groups to navigate and regulate the ever evolving world of accounting. The primary organizations in regulating and managing accounting are the Public Company Accounting Oversight Board (PCAOB), the Securities and Exchange Commission (SEC), and the Financial Accounting Standards Board (FASB). These three

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