Accountability And Responsibility

By Author: Henry Ford
Total Articles: 189
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Accountability and responsibility are two important aspect of any business. These are two terms that are intertwined in business ethics because they are the pillar of ensuring that the business operates according to the laid down ethical framework. Accountability and responsibility ensure that the business meets is obligations to the stakeholders while the stakeholders also meet their obligation to the business. All stakeholders must understand their responsibility towards the business and the value of accountability.
Engineering of financial accounts is a term that has been used to describe the way in which financial accounts are manipulated in order to get to the given target (Tillman & Indergaard, 2007). While the term financial engineering means the positive development of financial accounting tools, it has recently been used in reference to scandalous practices that have been used by institutions like Enron, WorldCom, and even government institution likes Fan Mae to manipulate financial results in order to reflected healthcare financial records (Tillman & Indergaard, 2007). Analysis of most of recent scandals ...
... shows that they originated from continued manipulation of financial results for different reasons. Among the different factors that may force individuals to engineer financial results include the pressure from capital markets, composition of board of directors, executive compensation, and insider trading. Financial engineering has been shown to have devastating effects on shareholders. Once revealed, it leads to lose in value of shares. The major challenge associated with this practice is that it is like a culture that is deeply rooted in the system (Tillman & Indergaard, 2007). It mainly involves collaboration of different persons from managerial to accounting levels. This means that it is difficult to deal with the problem by focusing on one area alone. There is no any single situation in which financial engineering can be considered ethical. This is because any situation that may seemingly to profit the business in the short term, it will have devastating effects in the long term. The only difference between financial engineering in small, family owned business and a large corporation is that the effects my be felt by owners of the business for a small business while in a large corporation it will be felt by more shareholders. However, they are the same in the sense that the practice has negative impact on the business.
D 2
Financial reporting cannot be considered as an end in itself but it is mainly intended to give information that can be used in making business and economic decisions. This implies that financial reporting is an aide tool in making business and economic decisions. In this respect, financial reporting has non immutable objectives because they are dynamic and vary with the context in hand. Financial reporting objectives are affected by economical, legal, political and social environment under which the reporting is done. In addition, they are also affected by the kind of information they are meant to provide.
In my own opinion, the most important objective of financial reporting is providing information to investors, creditors, and the government. Any business entity operates has different stakeholders who hold interests in the business and they have the right to know the state of the business, which can only be revealed through financial reporting. In this respect, financial reporting would also be considered beneficial to the business itself because it can attract potential creditors and investors (FASB, 1978). The least important objective of financial reporting in my perspective is the use in helping the management explains the financial effects on the enterprise. I find this the least important objective because management can explain financial effect of the business through regular assessment of business performance even without financial reports.
Week 2
D2
The financial scandals that rocked the country since 1990s showed the apparent weakness in financial accounting and reporting. There was need to come up with immediate measures to restore investor confidence on accounting practices and this resulted to adoption of Sarbanes-Oxley act. One particular section of interest in this act is Section 404 (Title IV – Enhancement of financial disclosures) that dealt with management assessment and internal controls (Wagner & Dittmar, 2006). This section requires that there should be an annual evaluation of internal controls and procedures for financial reporting. This section requires that CEOs and CFOs should periodically asses and vouch the effectiveness of internal financial reporting procedures. This section also requires that all companies should include an internal control report in the annual report. The internal control should contain statement of acknowledging responsibility, statement of identifying internal control framework, disclosure of material weaknesses in internal control over financial accounting. Sarbanes-Oxley is similar to FASB concepts in different aspects. FASB concepts provide important characteristics of information that makes accounting reports valid and useful (FASB, 1978). FASB concept emphasize on the principle of usefulness of accounting reports in the sense that it would be futile to have reports that cannot be validated. FASB concepts emphasize on the principles of relevance, reliability, compatibility and consistency, materiality, and costs and benefits. In my opinion, there are important reporting guidelines that have been instituted in order to prevent accounting scandals but more need to be done. Sections 302, 404, and 906 of Sarbanes-Oxley are important in preventing accounting scandals but it will require personal will to implement this. These sections are important in preventing scandals because they put it upon the executives the role of verifying financial reports, failure to which attracts a heavy fine. This will ensure that management is on toe to prevent financial fraud. Sarbanes-Oxley has been criticized for being too harsh business environment and making it difficult to compete with the rest of the world.
Week 3
D1
Four titles that appear in FedEx annual report include (FedEx, 2007):
1. Consolidated income report
2. Consolidated balance sheet
3. Consolidate cash flow
4. Consolidated report of increment or decrement in stockholders’ investment and inclusive income
Those financial statements which actually show the balance from temporary accounts include consolidated report of income and consolidated cash flow report. On the other hand, those financial statements that show balance from permanent accounts include consolidated balance sheet and consolidated statement of changes in stockholders’ investment and comprehensive income.
The terms “Temporary” and “Permanent” are appropriately used accounts and have different meanings. The following is the meaning and application of each term:
i. Temporary
Temporary in come accounts is a term that is used to refer to those accounts that have been closed down by the end of the business trading year. For these accounts, their balances are transferred to other accounts.
ii. Permanent
The term permanent in accounting is used to indicate those accounts that are mainly calculated by the end of the financial trading period. Such balances are usually carried forward and appear in the next trading period as opening balance in the same accounts.
These statements get integrated in other statement in order to form one cohesive set of financial reports (Cunningham, 2006). This is usually achieved through the following ways:
1. Cash and cash equivalents obtained from consolidated reports of cash flows are transferred as current assets to the consolidated balance sheet
2. From the consolidated statement of the changes in stockbroker’s investment and compressive incomes, the following are some of the items that are transferred to the consolidated balance sheet under common stockholders investment:
a) Common stock balance
b) Additional paid in capital
c) Retained earning
d) Accumulated other comprehensive
e) Treasury stock
All the reports have different purposes and contribute to the whole in different ways as well:
Consolidated statements of income shows in figures the profits or loss made that is calculated from differences between incomes received and total expenses incurred in the period. The item figures of the statement are commonly used to calculate net values of items in the balance sheet like depreciation. On the other hand, consolidated balance sheet is used to show in figures the asses owned by the business and business claim to those assets. It shows the ultimate position of the business (Crooch, 2006). Consolidated statement of cash flow is used to show how cash or money comes in the business and how the same money is used. The consolidated report of change in the shareholders investment and overall income is used to show the changes of capital for business owners and incomes made from capital investment. It shows the changes in capital and revenues for the owner. This item is usually transferred to the balance sheet.
The editorial viewpoint that I agree with is one by Hutton (2001). This is because the editorial points out the importance of financial statement in running the business. It shows how accountability and responsibility should be integrated to ensure that financial analysis do not compromise the ability of the business to access capital.
D2
Week 4
Financial reporting is one of the obligations of all public trade entities. At the end of the trading year, they are all supposed to report their financial performance to the public for close scrutiny by any interested party. In the report, they are supposed to highlight their financial objectives and how they have been able to fulfill the objectives that were set out earlier. Although this information is sometimes viewed as advertisement by the company, they contain important information to the stakeholders including shareholders, potential investors, and others who would be interested in the company. These reports are also important for the independent financial analysts who may be invited to carry out an independent audit of financial performance of the company. Therefore, annual public report should not be taken just as an obligation but as important fulfillment of the business obligation towards its stakeholders.
Public annual reports have different roles. Among the important roles played by public annual reports include (Stickney, 2002):
a) It gives important information financial position of the business
b) Informs about the value of business
c) Communicate the financial performance of the business to the stakeholders
d) Provides valuable information on management’s stewardship to the existing stockholders
There are different stakeholders who are usually interested in the public annual reports and looks into different sections of the report. The following are two stakeholders and the specific areas they may be interested in the annual report:
a) Shareholders
The main interest of the shareholder is the financial performance of the business. A shareholders interest in the business is the amount of earning he/she will get from the investment (Stickney, 2002). This means that their main area of interest will be the on the dividends that will be earned per share.
b) Investors
Investors are people who are wiling to invest their money in the business and get returns in form of dividends. Investors decide whether to invest in a given business based on the performance of the business (Stickney, 2002). This means that potential investors will be interested in the trend in financial performance for the business. They will look to compare the performance of the business in the last year and how it has performed in its current year. Therefore, investors are likely to be interest in different areas of the annual public report but most important they will look at the comparative financial performance and dividends earned over a period of years because they want to establish the trend in dividend from the business.
Comparing GE financial report from that of FedEx there are more similarities in their reporting. It is evident that both have followed international reporting standards because they have included similar sections. Therefore both reporting approaches are effective because they adhere to the standard financial reporting requirements.

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