Financial reporting ethics is a key concept when considering the reporting of organization’s financial data. When one considers that financial data that is misrepresented can wrongly affect third parties, then it becomes necessary that certain norms be established when dealing with financial information and its reporting. This paper examines a case study for the purpose of determining the ethical issues surrounding wrong reporting.
In this case, the financial reporting involved $140,000 which was spent in the first quarter, whose effect in including it in the first quarter would reflect a loss. The controller thus requested the accountant to move the expense to the quarter where the money would have the least effect of losses. While this would look good on paper for the company, it entails an ethical dilemma for the accountant as it presents a malpractice in financial reporting.
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The disclosure of financial information requires moral application of principles to govern the process. The placement of $140,000 in a quarter where it will have the least effect as opposed to the correct quarter brings about fraudulent financial reporting. This is where the organization knowingly misstates financial statements from the company. This is normally done with the intent of misleading investors and maintaining a favorable company share price (Freedman, 2015). Since the spending that is outlined here was in the interests of the company, rather than a result of asset mismanagement, it will still be profitable in the long-run to report it correctly. Fraudulent financial reporting normally has short-term effects of boosting share price and wooing investors to the company (Ferrell & Fraedrich, 2015). Nonetheless, the long-term effects of such an action could be adverse to the organization. The last two decades saw companies go down as a result of fraudulent reporting.
In conclusion then, it would be profitable in the long run to correctly report the $140,000 for Greenwood Company as opposed to running the risk of discovery of fraudulent financial reporting in future. Additionally, it is the morally correct action to take in view of financial reporting ethics.
References
Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. New York: Nelson Education.
Freedman, J. (2015). What Is an "Ethical Issue" in Financial Accounting? Retrieved January 25, 2017, from Small Business Chron: http://smallbusiness.chron.com/ethical-issue-financial-accounting-57889.html.
