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Chapter 1: Question 28Q (page 23)

How are financial accountants challenged in their work to make ethical decisions? Is technical mastery of GAAP not sufficient to the practice of financial accounting?

Short Answer

Expert verified

Accountants must consider the moral dimensions of certain circumstances as Generally Accepted Accounting Principles (GAAP) cover up all important characteristics to be reported in the financial statements.

Yes, technical mastery of GAAP is insufficient for the practice of financial accounting.

Step by step solution

01

Meaning of Ethical Behavior

Ethical behavior is defined as actions that are performed in accordance with laws and at the same time affirm human morals and values and are not impacted.

02

Challenges faced by financial accountants in their work to make ethical decisions

Companies that focus on 鈥渆xpansion of the bottom line,鈥� 鈥渇acing competition challenges,鈥� as well as 鈥渟tressing over short-term outcomes鈥� put accountants in a situation of pressure and conflict. Since all the important features are not recorded in the financial statements under Generally Accepted Accounting Principles (GAAP), in this case, accountants must select among the alternatives. These accounting choices determine if specific stakeholders may be in loss or benefit.

03

Competency of technical mastery of GAAP to the practice of financial accounting

Technical mastery is not enough when making ethical decisions because basic ethical questions are sometimes difficult to answer by only following Generally Accepted Accounting Principles (GAAP) or the rules of the profession.

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Most popular questions from this chapter

Some accountants have politicization in the development and acceptance of generally accepted accounting principles (i.e., rule-making) is taking place. Some use the term 鈥減oliticization鈥� in a narrow sense to mean the influence by governmental agencies, particularly the securities and Exchange Commission, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromise that results when the bodies responsible for developing generally accepted accounting principles are pressured by interest groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Management Accountants, financial analysts, bankers, lawyers, and so on).Instructions

(a) The Committee on Accounting Procedure of the AICPA was established in the mid-to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the first two indicate an increasing politicization (as the term is used in the broad sense) of accounting standard setting? Explain your answer by indicating how the CAP, the APB, and the FASB operated or operate. Cite specific developments that tend to support your answer.

(b) What arguments can be raised to support the 鈥減oliticization鈥� of accounting rule-making?

(c) What arguments can be raised against the 鈥減oliticization鈥� of accounting rule-making?

(FASB and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false.

  1. GAAP is the term used to indicate the whole body of FASB authoritative literature.
  2. Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements.
  3. The primary governmental body that has influence over the FASB is the SEC.
  4. The FASB has a government mandate and therefore does not have to follow due process in issuing a standard.

CA 1-4 (Financial Accounting) Omar Morena has recently completed his first year of studying accounting. His instructor for next semester has indicated that the primary focus will be the area of financial accounting.

Instructions

  1. Differentiate between financial accounting and managerial accounting.
  2. One part of financial accounting involves the preparation of financial statements. What are the financial statements most frequently provided?
  3. What is the difference between financial statements and financial reporting?

In what way is the Securities and Exchange Commission concerned about and supportive of accounting principles and standards?

(Objective of Financial Reporting) Karen Sepan, a recent graduate of the local state university, is presently employed by a large manufacturing company. She has been asked by Jose Martinez, controller, to prepare the company鈥檚 response to a current Preliminary Views published by the Financial Accounting Standards Board (FASB). Sepan knows that the FASB has a conceptual framework, and she believes that these concept statements could be used to support the company鈥檚 response to the Preliminary Views. She has prepared a rough draft of the response citing the objective of financial reporting.Instructions

  1. Identify the objective of financial reporting.
  2. Describe the level of sophistication expected of the users of financial information by the objective of financial reporting.
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