Ethical And Legal Obligations In Accounting Essay

According to Marshall (2004), accounting is the process of identifying, measuring, and communicating economic information about an organization for the purpose of making decisions and informed judgements (p. 3). Specifically, financial accounting refers to the process that results in the preparation and reporting of financial statements for an entity (Marshall, McManus, Viele, p. 5). While many entities prepare their own financial statements, firms can also contract with a public accounting firm or a Certified Public Accountant (CPA) to perform services such as reviewing or compiling statements. (A CPA is a professional designation granted by individual states.) Entities that are publicly traded or complex in nature contract for†¦show more content†¦The SEC has statutory authority over setting standards in the public sector; however, according to the FASB website, the SEC relies on the private sector for this function to the extent that the private sector demonstrates abil ity to fulfill the responsibility in the public interest (FACTSaboutFASB, 2005, 2). Current generally accepted accounting principles (GAAP) and auditing standards require that the financial statements of an entity show the following for the reporting period: financial position at the end of the period (balance sheet), earnings for the period (income statement), cash flows during the period (statement of cash flows), and investments by and distributions to owners during the period (statement of changes in owners equity) (Marshall, McManus, Viele). A central concept is the accounting equation, in which assets equals liabilities plus owners equity, which is presented on the balance sheet. Basic principles in recording transactions (which provide the basis for preparing the income statement) are revenue recognition, which occurs at the time of a sale, and the matching princi ple, whereby the revenue is matched to any corresponding expense that was incurred to produce the revenue. While these concepts and principles and others like them appear simplistic, the applications in complex financial transactions are not universal.Show MoreRelatedEthical and Legal Obligations in Accounting1329 Words   |  6 PagesMarshall (2004), accounting is the process of identifying, measuring, and communicating economic information about an organization for the purpose of making decisions and informed judgements (p. 3). Specifically, financial accounting refers to the process that results in the preparation and reporting of financial statements for an entity (Marshall, McManus, Viele, p. 5). While many entities prepare their own financial statements, firms can also contract with a public accounting firm or a CertifiedRead MoreEssay about Ethical And Legal Obligations1150 Words   |  5 PagesEthical and Legal Obligations Ethical and legal obligations apply to all members of society. As one in society, the obligation to act in an ethical, law abiding manner on a daily basis is vital to the integrity of daily life. Many professions have their own code of ethics. Financial reporting is not exempt from such ethical and legal standards. One’s lively hood depends on decisions made in the business world. 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