Question

what do you think the role of ethics is in the financial reporting process? Give examples. IN YOUR OWN WORDS.

Answer 1

Financial frauds have been on rise recently. Most of the frauds have been related to financial reporting. There are various ways in which these could happen.

Fraudulent Financial Reporting: This could be attributed to misstatement of financial statement. Capitalization of expenses, inflating income & stock prices are few examples of fraudulent financial reporting.

Misappropriation of assets: The use of company assets for anything other than the company's interests. Using company equipments for personal use or charging personal expenses like dinner to the company's account are few examples of this.

Disclosure: Hiding or distorting facts and statements which help investors to take decisions lead to disclosure violations. It is important the management keep the propreitary information to themselves and don't offer undue advantage to few sections.

Penalty: The penalties for unethical practices in financial reporting should be severe to act as deterrent. Recent frauds in Banking institutions has put a very sorry picture and stringent measures and penalties need to be in place to act as detterent.