The Use Of Ethics In Accounting: Over-Prediction Vs Over-Stating Of Financials Essay.

As a health care administrator, you will undoubtedly be faced with the responsibility of making decisions that may be impacted by ethics. Sometimes, the best approach to a given situation is clear, whereas others require you to carefully consider laws, regulations, and the impact of potential outcomes. How do you ensure you will make the best decision for your health care organization? For this Discussion, you examine the following scenario and consider whether there is a breach of ethics.

Scenario:
An organization is developing a business plan. The intent of the organization is to provide a service for a community in need, but it appears they might have trouble obtaining financing. The board is trying to decide whether to be transparent in their financials or over-predict so they can properly finance their venture.
To prepare for this Discussion:
• Read the provided scenario.
• Given the mission of the organization in the scenario, consider whether over-predicting financials would be a breach of ethics.

Post a cohesive response to the following:
Evaluate whether overstating financials would be a breach of ethics for the organization in the scenario. Why or why not?
Support your response by identifying and explaining key points and/or examples presented in the Learning Resources.
Read a selection of your colleagues' postings. Consider how your colleagues’ postings relate to the information presented in the Learning Resources and to your own posting.

The use of ethics in accounting is in general concerned with making good and moral decisions in relation to transparency and disclosure of financial information. However, over prediction of financials would not be breach of ethics. This is due to the reason that, failure to maintain transparency and disclose relevant financial information to the investors would actually affect the decision of the investors (Lee, Bosworth & Kudo, 2016). These investors may not be willing to invest in such organization and the activities of the organization can be considered to be fraudulent financial reporting. However; in regard to the given scenario, it is important for the executives of the organization to protect proprietary information of the company (Omar, Johari & Hasnan, 2015). Therefore, over-prediction of financials may not be ethical; if the nature of the information is such that it is related to a significant event. Therefore, it would not be considered to be ethical to keep this information hidden from the investors.

Overstating of financials would create a major breach of ethics for the organization to the large extent. However, in the long run over-stating of financials can led to serious consequences for the organization and the executives can reach considerable extent for the purpose of obtaining finances (Loveland, 2016). It is worthwhile to mention here that, various financial transactions takes place in a market which is associated with certain moral rules with an expectation of certain moral behavior. It is worth mentioning that the basic prohibition is against performing fraud and manipulation.

In some cases, financial reporters performs “cook the books” in order to investigate fraudulent activities on the part of the organizations performed for the purpose of falsifying their financial statements. The natures of the practice of “cook the books” is such that, it involves formulating figures which may or may not create reasonable estimation of actual numbers. This practice is not only unethical however; it is associated with fraudulent intentions. It is noteworthy to mention here that the practice of overstating the financial statements is not only considered to be unethical but also fraudulent. It is worth noting that over-stating of financial statements involves manipulation of accounting records in the preparation of financial statements (Goldberg, Danko & Kessler, 2016). In this regard, mention can be made about the attempts on the part of the organization; that it might overstate its financial statements for the purpose of profit maximization and for the purpose of attracting investors.

Therefore, in regard to the present business scenario, when the organization is developing a business plan, then in such case overly predicting or over- stating the financials would cause breach of ethics. This is because, investors will be willing to invest in such organization relying upon the financial statements. Therefore, the organization should provide transparency in their financials in order to attract investors in the long run.

References:

Goldberg, S. R., Danko, D., & Kessler, L. L. (2016). Ownership structure, fraud, and corporate governance. Journal of Corporate Accounting & Finance, 27(2), 39-46.

Lee, S. K., Bosworth, W., & Kudo, F. (2016). Compensation committees: independence and firm performance. Managerial Finance, 42(1), 23-33.

Loveland, R. (2016). How prompt was regulatory corrective action during the financial crisis?. Journal of Financial Stability, 25, 16-36.

Omar, N., Johari, Z. A., & Hasnan, S. (2015). Corporate Culture and the Occurrence of Financial Statement Fraud: A Review of Literature. Procedia Economics and Finance, 31, 367-372.