Ethical Dimensions of Preparing Two Financial Reports

Topics: Enron, Balance sheet, Ethics Pages: 2 (439 words) Published: July 23, 2011

Ethical dimensions of financial accounting with respect to keeping of two sets of records, one for internal purposes only and the other for internal taxation purposes.

Financial accounting, as stated by Garrison, is concerned with providing information those people outside an organization. This includes preparation of financial reports showing the company’s past financial performance which will be the basis for additional investments for stockholders, capacity to pay off loans for creditors or banks, imposing correct government taxes as mandated by law, etc.

Financial reports, therefore, should be done accurately and with utmost truthfulness to avoid misconstruction due to omission or misstatement as stated in the International Federation of Accountants Code of Ethics. However, there are some who do not conform to this Code.

Some companies practice preparation of two sets of financial reports at the end of the fiscal year, one for internal purpose and the other to be used and submitted for internal taxation purpose. Usually, if the company would like to attract additional investments from its stockholders, incomes are bloated. On the other hand, to avoid paying high taxes or even pay no taxes at all, financial statements are manipulated to reflect a lower or negative net income, which will be the basis for the computation of the taxes to be paid by the company.

Whether for stockholders or for taxation, I strongly condemn such practice. This does not only violate the Code of Ethics of IFAC, such practice, if done continually, could even be a start of the eventual downfall of any company due to loss of its credibility and integrity. Thus, there exist major financial scandals that lead to collapse of business giants like what happened to ENRON. Further, leaders of the company may suffer from huge penalties or even jail terms, if found guilty of violating the code.

Sadly, our country’s system on taxation and how the government...
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