04/07/2024

04/07/2024

The Ethics Of Financial Reporting Conflicts And Resolutions

In today’s blog, we will discuss the ethics around financial reporting its conflicts and their resolutions. 

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Ethics has a significant role in the reporting of financial statements as statements are required to give a true and fair view of the state of the company at a certain period, for this to hold true requires all those involved in the creation of the financial statements to act in a positive ethical manner. 

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Knowing what potential conflicts may occur and how to resolve them effectively and efficiently can help those involved in reporting the financial statements in a manner that is ethical, examples of conflicts could include conflicts of interest, external pressures, and intimidation from management.

Conflict of Interest

The biggest ethical issue that arises during the reporting of a set of financial accounts is the conflict of interest. Those who work on a set of financial accounts under the principles of financial accounting must remain objective and hold integrity, meaning they avoid any bias towards the company, be honest and use the correct framework when reporting on the financial accounts. 

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Resolutions to such conflict would be to avoid having people who may have such conflict take part in the creation of the reporting of the set of financial accounts. 

External Pressures

External pressure may form in the following ways: market expectations and competition. Those involved in the reporting of financial statements require strong ethical morals when such pressures arise, as they need to resist the temptations of fraudulent reporting to meet the expectations of the market or to appear to be as strong as their competition during periods of financial distress of the company. 

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Having strong internal controls in the company whilst also educating everyone involved about the importance of ethics can help to resolve or prevent such conflict from taking place. 

Management 

A conflict may arise with management as they may want those involved in the creation of the accounts to either overstate the level of turnover or understate the amount in the creditors of the company, thus causing the statements not to hold a true and fair view. Those involved must act to their level of competence and must also be able to manage the pressure when faced with such conflict to act in their best integrity as implied by the principles of financial reporting. 

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Having someone who is not afraid of confrontation and who remains true to their values and integrity report on the set of financial statements can help to avoid conflict or feel intimidated by management. 

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To conclude ethics plays a significant role in the reporting of financial information as it is key to the statements being credible and dependable. Resolving conflicts needs an approach that sticks to the key principles of financial reporting – Objective, Integrity, Independence, and professional competence by sticking to these principles those involved in the reporting of financial statements should be able to resolve or avoid the conflicts that arise in financial reporting. 

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Reach out to our team of experts for more information at info@cooneycarey.ie.