Your client is preparing financial statements to show the bank. You know that he has incurred a computer repair expense during the month, but you see no such expense on the books. When you question the client, he tells you that he has not received the official bill, although he knows the expense was $1,250. Your client is on the accrual basis of accounting. He does not want the computer repair expense on the books as of the end of the month because he wants his profits to look good for the bank. Is your client behaving ethically by suggesting that the computer repair expense not be booked until the official bill is presented? Are you behaving ethically if you go along with the client's request? What principle is involved here?
I think the situation is unethical and they would be breaking some company laws, i could not thnik of the correct words, please help ... thanks
In this situation, it appears that your client is suggesting not booking the computer repair expense until the official bill is presented, in order to make the company's profits look better for the bank. From an ethical perspective, this practice raises a number of concerns.
Firstly, as an accountant or a professional in the field, it is important to adhere to ethical principles such as honesty, integrity, and objectivity. Failing to record an expense in the financial statements, intentionally creating a misleading picture of the company's financial position, can be seen as a violation of these principles.
Additionally, misleading financial statements not only go against ethical guidelines but also potentially violate legal regulations and standards such as the Generally Accepted Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS). These regulations require accurate and transparent financial reporting.
By going along with your client's request to withhold recording the expense, you may also be compromising your own ethical responsibilities. As an accountant or professional, it is important to act in the best interest of the stakeholders and the public by providing accurate and reliable financial information.
The principle involved in this situation is the principle of honesty and accuracy in financial reporting. This principle ensures that financial statements reflect the true and fair view of the company's financial position and performance.
In conclusion, it is generally considered unethical for your client to suggest not recording the expense until the official bill is presented, and it would also be unethical for you to go along with this request. It is essential to follow ethical principles and financial reporting standards to provide accurate and transparent financial information.
The situation you have described raises ethical concerns in accounting. Both your client's suggestion and your participation in not recording the computer repair expense until the official bill is presented can be seen as unethical behavior.
One of the fundamental principles in accounting is the principle of accruals. According to this principle, expenses should be recognized in the period in which they are incurred, regardless of when the cash payment is made or the bill is received. By not recording the expense, your client is not adhering to the principle of accruals and is misrepresenting the financial statements by understating expenses and overestimating profits.
As an accountant, it is your professional responsibility to act ethically and follow the accounting principles and standards. Since you understand the client's motive for not booking the expense, it is important to advise your client on the ethical implications of their request and the potential consequences of misrepresenting financial statements to the bank.
If your client insists on not booking the expense until the official bill is presented, you should consider demonstrating your commitment to ethical behavior by refusing to participate in such practices. You can explain to the client the importance of accurate and reliable financial reporting for stakeholders and the potential legal and reputational risks associated with misrepresenting financial information.
Ultimately, it is crucial to prioritize ethical conduct in accounting to maintain transparency and integrity within the financial reporting process.