Financial reporting is the record of the financial activities of a person, business or any other entity. Financial reports provide the financial position, performance and any changes that could occur in a business. It is useful in helping the business to make a wide variety of economic decisions. The principles of financial reporting are different in each country and it is hard to make their comparisons. There are sets of rules that govern financial reports in all countries to ensure uniformity and a medium for comparisons between companies. This is like the bribery act of 2010 developed in the UK.
The practice of financial accounting according to Chariri (2009) can be referred to as a socially constructed reality. It involves the interactions between different social entities, organizational entities and the environment in which the company is based. For this reason it requires ethical behavior for an efficient financial report to be formulated.
The Relevance of Ethical Behavior in Financial Reporting
A progressing number of studies have been used to show that the successful corporate performance of a business determined by efficient financial reporting is based on the company’s ability to incorporate the principles of sustainability. Some studies argue that the connection of the companies to its stakeholders is especially sustained through the relationship between the companies and various stakeholders like the employees or suppliers (Lackmann et al, 2011). The ethical approach is mainly generated from the accounting perspectives of truth, fairness and justice. Justice entails that the accounting reports should entail equal treatment for all the interested entities and they must not present a perspective of the firm showing discriminatory practices of a specific class of stakeholders.
Truth as an ethical behavior depicts that the accounting context should entail an economic reality that looks into the economic constraints that are measurable by the business. Ethical reporting should entail that the financial statements should be in the context of the available accounting principles. This is to ensure that disclosures are adequately revealed so as not to present a wrong perspective of the businesses performance. Transparency ensures that the financial report is evident and comprehensible.
The Financial Accounting Standards board is generally responsible for providing financial reporting guidance in all countries (Cooper & Frank, 2011). Accounting scandals arise from the disclosure of inappropriate actions of the leaders of huge corporations. In the United States there is a Security and Exchange Commission that carry out investigation of fraud and unethical behavior. This was like in the case of Japanese Company Olympus Corporation and the Indian Company Satyam Computer services that was depicting unethical behavior beyond borders. Olympus acquired new management to try regaining their financial position after the scandal (Soble, 2012). There are also other scandals like where WorldCom won an approval in court in 2003 over clearance of a major problem of unethical behavior (Rayner & Gustin, 2003). This was curb unethical behavior presented in financial accounting.
The Implications of the Bribery Act (2010) On Ethical Behavior in Financial Reporting
The Bribery Act of 2010 is to represent and strengthen the UK stand on corruption and bribery. This is an important advancement on the universal anti-bribery laws. This is in the step with the US Foreign Corrupt Practices Act (FCPA) that is currently a universal standard. The act makes it an offence to be involved in bribery (Rusell, 2011). Bribery and corruption go against the accounting concepts of transparency. The bribery act is not with the intention to add a firm’s hospitality but it is meant to prevent lavish gifts that categorize corruption. There is evident need to induce the proper ethical behavior in financial reporting to promote a fair economy. The act provides vital evidence of a firm’s performance and it should be under the appropriate ethical behavior. Bribery is a series risk that should be managed in a business to avoid prosecution and the advancement of ethical behavior.
Arguably In Today%Ufffds Society, There Is More Regulation Of Financial Reporting And Increased Disclosure In The Published Annual Reports. Despite These Increases, However, We Are Experiencing A Global Economic Crisis And An Unprecedented Number Of Accounting Scandals And Failures.
There are increased regulations and quality financial reporting can not still be achieved due to presence of personal interests in the economic world. Some studies have argued that restriction limits like those presented by regulators limit the prospective of the quality of a financial report benefits. The regulations and authoritative bans may make the services a source of revenue of the auditor but they may cause impairment of independence. The measure meant of quality financial reporting is measured by restatements of financial statements that have previously been issued (Seetharaman et al, 2011). This is through the taxation related statements that always depict that restatements always show lower quality in the tax area. According to (Feng et al, 2011), private firms have less quality reports than public firms as they generally have a weaker information environment for disclosure because of decreased regulations. The quality reporting information is also lower in the less developed countries than in developed countries due to lower relevance of the accounting information presented by the reports.
A number of financial scandals are usually due to lack of quality financial reporting. That is why regulations and authorities need to be present so as to improve the financial reporting quality and avoid financial crisis. According to The Observer (2009), the financial authority even sued on BNP Paribus for the weak anti-fraud control. A French Bank senior employee had opted not to receive reports and targeted banks from overseas thus reducing the quality of financial reporting. This is a way of improving financial reporting for better decision making thus avoiding getting into financial crisis due to poor decisions.
The quality of financial reports is determined by their degree of understandability, reliability, relevance and degree of comparability with other financial reports. High quality information in financial reports is essential in the proper functioning of the markets of equity, financial markets and also in the financial decisions. The reports quality is what determines the quality of earnings a firm generates. The quality of information generated by financial reports has various components like the predictive value, verifiability, timeliness, neutrality, feedback value and represents faithfulness (Aktas & Kargin, 2011).
According to Aktas & Kargin (2011), timeliness is the most important feature of quality financial reports. The reports have to be published in time so that they can be used in decision making. For example in the United States there is the Securities and Exchange Commission (SEC). Timeliness is also a principle of corporate governance. Disclosure and transparency are explained as the corporate governance ensuring that the financial reports should exhibit accurate and timely disclosure on matters regarding the company. Disclosure should reveal matters on finance and the operations of a company. Timely reporting as the main form of quality reporting is affected by the regulators, the sector and firms specifics among others.
The best practices of reporting should transpire in transparency, banks being supervised and the accounting standards enhance. The implementation of standards and codes provides a level ground for firms to work in. The initiative may raise issues in developing countries but in rich countries the codes and standards are enhanced (Schneider & Maxwell, 2003).
According to Rusell (2012), the financial Service Authority (FSA) has performed efficiently in improving the quality financial reporting of firms. It aims at promoting integrity and transparency in financial accounting. This is like how the FSA ruled against Mr.Varrier’s dishonesty conduct by terming him improper to work in the UK’s financial services. He was a managing director BGC company and was questioned on having lost blackberry phones over a year.
In conclusion, quality financial reporting improves the public image of a business, reduces chances of financial scandals and crises. Even though there are increased regulations, personal interests have deeply led global economic crisis and increased scandals and failures. As talked about in the essay, the developing countries can not keep up with the regulations thus are not likely to evade any economic crises.