Accounting ethics, pertaining to disclosure and conflict of interest - Admission/Application Essay Example

? Accounting Ethics Introduction ACC 410 A, B, and C, often referred to as intermediate accounting, cover a notable portion of the Generally Accepted Accounting Standards (GAAP). ACC 410 A particularly gives a good understanding of “the accounting process, the principal financial statements, accounting concepts, theory and application of the time value of money, and accounting for cash, receivables, and inventories” (Chegg). With the increasing complexity of the modern business environment, many accounting related topics in ACC 40A is under scrutiny now. This paper will evaluate some key current accounting related topics in ACC 410A that are of considerable importance in the present business context. Time Value of Money Time value of money is a key aspect of accounting because every business transaction is recorded in terms of monetary value. Businesses generally do not record transactions in books of accounts if those transactions cannot be expressed in terms of money. There are two common methods such as historical cost and market value are used to record financial transactions in account books. Under historical cost approach, an asset’s original cost at the time of its acquisition is recorded in the firm’s accounting books whereas the current or fair market value of the asset is estimated and recorded in case of the market value approach. Both these accounting techniques have their own advantages and disadvantages. As Ahya points out, the historical cost approach is more reliable and hence it is necessary for the preparation of financial statements. As the author points out, historical cost method is based on the actual transaction and hence this valuation technique will be verifiable and free from management bias (33-34). It is clear that management personnel cannot manipulate asset values to meet their personal interests under the historical cost concept. In contrast to this view, a group of accounting professionals argues that the historical cost approach considers very old data and therefore it cannot provide the most relevant information to investors. They add that the historical cost method does not take into account the possible changes in the market value of money over the past years since the purchase of a particular asset. Evidently this practice would not ensure a true and fair view of the financial statements and hence many experts propose a fair market valuation method for asset valuation. Considering the frequent fluctuations in the current global financial market, it is not good to follow a historical cost approach. Holton and Bates opine that a fair market value approach may increase the chance of business fraud and other unfair business practices like profit inflation (52). Furthermore, the absence of a common asset valuation technique contributes to the difficulty in the analysis and comparison of financial statements. Hence, it is necessary to develop a single technique for evaluating assets. Accounting for Cash There are two different accounting concepts such as accrual accounting and cash accounting based on the way transactions are recorded. According to Hankins and Baker, under the accrual accounting method, financial transactions are recorded as they occur (414). The major benefit of this accounting practice is that it assists the management to maintain record of entire business transactions. In addition, this technique can help the top management to identify sales trends relating to particular economic conditions in the business environment. Accounting professionals opine that this method may greatly benefit investors and credit lenders to make sound financial decisions. GAAP requires organizations to follow accrual accounting under certain circumstances. Generally, business houses choose the accrual accounting approach if they expect a notable business growth in the near future in order to avoid issues associated with a changeover period. However, this accounting practice requires the management to spend more time maintaining their financial accounts. Since financial transactions are recorded as they occur under the accrual accounting method, more number of journal entries is needed to complete this procedure effectively. Another major pitfall of accrual accounting technique is that it often fails to maintain an accurate record of cash. Finally, managing cash flow statements is also a difficult task under the accrual accounting method. As Tracy points out, under the cash basis accounting method, cash transactions are recorded in the account books only when the cash changes hand. This accounting technique eliminates the creation of excessive journal entries and hence minimizes the accounting complexity to a great extent (10). As compared to the accrual method, the cash basis method can track cash flows much easier. It seems that cash flow management can play a significant role in driving the business growth through strong operational profits. Under the cash basis accounting, it is not possible to create an accurate historical trend of business activities, and therefore investors and bankers find it difficult to evaluate the business effectively. This accounting approach does not consider the sale date of goods and services. Many accounting experts claim that cash based accounting can negatively affect inventory purchases and other asset acquisitions. Finally, cash based accounting may not be usable for some industries including manufacturing, retail, and construction and therefore it is not a comprehensive accounting method. Today payments are made in a number of forms and therefore it has become more difficult to record financial transactions. As a result, organizations choose different accounting techniques to track cash flows and this situation makes it extremely difficult for stakeholders to understand the actual business position. Therefore, it is vital for corporations to develop a common accounting technique to track cash flows effectively and to drive business growth at a notable rate. Conclusion From the above discussion, it is clear that many topics in ACC 410A are being reviewed currently due to rapid changes in the business environment. Currently historical cost approach and fair market value approach are used to value assets. When the historical cost approach fails to provide a good understanding of actual value of assets, the fair market value approach increases the chances of unfair management practices. Time value of money changes significantly nowadays and therefore development of a more powerful asset valuation tool is extremely important. Similarly, the accrual accounting and cash based accounting methods have some significant drawbacks, and hence there is an urgent need of replacing the current cash accounting practices with a better one. Works Cited Ahya, Chaitali. Intellectual Property Valuation: A Primer for Identifying and Determining Value. US: American Bar Association, 2005. Print. Chegg. “Info for ACC 410A - Intermediate Accounting I”. web 25 Aug 2013 Holton, Lisa and Bates, Jim. Business Valuation For Dummies. US: John Wiley & Sons, 2009. Print. Hankins, Robert W and Baker, Judith J. Management Accounting for Health Care Organizations: Tools and Techniques for Decision Support. Jones & Bartlett Learning, 2004. Print. Tracy, John A. Accounting Workbook For Dummies. John Wiley & Sons, 2011. Print. Read More