Legal, Ethical, and Technological Concerns For Businesses
The prime objective of any business is to generate profit. If the funds of any organization are not followed up keenly, these profits will not be realized. The Investopedia dictionary defines accounting as a process by which financial transactions of an organization are summarized, analyzed and reported. Financial reporting entails stating financial details as well as the way funds that are used in making investment and credit as well as other decisions flow in the organization via financial statements (Hooper, 2013).
Honesty is an important component of effective accounting as well as financial reporting because it ensures that only accurate financial data is provided. The people involved in accounting as well as financial reporting are guided by technological, ethical and legal concerns. This paper discusses these concerns because they assist in the improvement of accounting standards and financial reporting.
Customers and investors’ trust in any company is instilled by a reputation of good financial reporting. This reputation raises confidence in the company’s external environment. As such, legal policies exist to guide companies on accounting as well as financial reporting. The “Securities Exchange Act” and the “Security Act” of 1934 authorized the creation and implementation of accounting standards for governing enterprises that trade publicly (Marshall, 2003).
The main focus of these acts was to ensure that securities’ buyers get accurate and complete information before investing. Several amendments have been made on this law in order to curb funds embezzlement and feuds in the public companies. This law involved private companies later. It provides a timeframe that organizations have to submit financial declarations.
This time is known as the accounting period and it is usually one year. All entities are authorized by the legal system to involve auditors. A report by Gaver, Paterson & Pacini (2012) explains the essence of auditors as well as the performance of an organization. This study involved firms that the Insurer Loss Reserves Inc. covers. According to this study, majority of the firms that had incurred a loss had their financial statements altered by their managers. It also established that wrong financial statements were used by managers to lure investors.
As such, the government introduced the external auditors’ notion so that these experts can access the records of companies in order to justify the provided reports. According to Smite (2009), accounting standards were criticized as the factor that led to the establishment of FASB or the Financial Accounting Standards Board. This board determines the accounting standards and principles in the entire accounting community. It is the mandate of the external auditors to oversee organizations’ integrity. The auditors play an important role in the financial reporting as well as the accounting legal system.
Among the most important aspects of financial statements reporting is accuracy. Bumping into conclusions and low evaluations can raise ethical concerns since the rule is to remain conservative and realistic any time there are doubts (Marshall, 2003). According to Smite (2009), ethics are the principles of objectivity, integrity, competence and independence. Integrity is being up-front and truthful in communication and dealings. Impartiality is being free from conflicting interests (Marshall, 2003). Ethics are about individual moral judgments on what is immoral or correct. Managers who use company cars for private work do not have ethics. It is the responsibility of companies to ensure ethical behaviors among their staffs.
The current world is full of corruption and fraud and therefore managers should make informed choices to avoid losing company’s money. Accountants should monitor the operations of the companies closely in order to identify loopholes through which losses can occur. It is the responsibility of accountants to ensure that the company’s finest interests are met not just for the organization, but for the public and the sponsors as well by providing candid and precise financial data (Smite, 2009).
In any organization precision is very significant when it comes to financial reporting. Stating high profit as a way of attracting sponsors and investors is unethical. Customers should purchase securities of a company with confidence that the firm provided a correct financial report. A company should have a handbook that stipulates the code of practice and conduct. This handbook ought to be updated on daily basis as a way of ensuring that employees operate according to the stipulated ethics.
Advancement in technology influences accounting and other business operations. Accounting progression is updated using computerized systems. These systems enhance efficiency in the storage of a company’s financial information. In the past years, this data was inaccurate because of human and mathematical errors. A company can incur huge losses because of missing numbers. However, this is taken care of by technology. Accounting software offers calculators and accurate figures. Technology facilitates accounting automation because it transfers data to multiple systems and reports. Sending invoices and making payments are some of the automated operations that have reduced the exhausting paper work.
Voluminous data can be stored by computer for years without being lost. Record keeping required space and this has been used in fixing fraud in the past. However, managers and accountants would make transactions and misplace the involved records so that could embezzle funds without being caught.
However, culprits can easily be caught today because computers make tracking data easy. Data is now processed efficiently and this enables modern companies to release financial reports with ease even after every four months contrary to the one year timeframe that is provided for by the law. Auditors are able to monitor the transactions of a company closely using the software that is provided by the modern technology.
Nevertheless, people criticize technology for various reasons. First, the information of an organization can be used by hackers maliciously if there is no proper protection of the accounting program. The accounting systems can become outdated due to the rapid rate at which technology changes. This requires upgrading which might be costly and requiring the staff members to be trained.
Financial reporting and accounting are important aspects of the operations of companies. Efficient financial reporting and accounting occur when a company has ethical employees. Individuals cultivate ethics within themselves and ethics differ between people. Every employee should keep personal interest away in order to serve the organization diligently. Providing the latest technology enhances this service.
Modern technology enhances speed and accuracy. Additionally, it is possible to store data and retrieve it when necessary using the latest technology. Managers as well as accountants ought to adhere to the established law in ensuring transparency in their financial reporting. Managers report to shareholders. Therefore, they ought to try to minimize or to stop funds embezzlement. As such, technology, legal systems and ethics are important in ensuring efficient financial reporting as well as accounting in a company.
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Gaver, J. J., Paterson, J. S., & Pacini, C. J. (2012). “The influence of auditor state-level legal liability on conservative financial reporting in the property-casualty insurance industry”. Auditing, 31(3), 95-124. Retrieved from:http://search.proquest.com/docview/1034603577?accountid=1611
Hooper, C. (2013). “What is financial reporting and who uses financial reports?” Retrieved from: http://www.charleshooper.n et/blog/what-is-financial-reporting-and-who-uses-financial-reports
Marshall David II. (2003). Accounting: What the Numbers Mean. 6th Ed. McGraw Publishing
Stime, J. (2009). “Ethical and legal accounting obligations”. Yahoo contributor network. Retrieved from: http://voices.yahoo.com/ethical-legal-accounting-obligations-4543075.html?cat=3