Ethical and Legal Obligations Paper

Ethical and Legal Obligations Paper

All members of a civilized and harmonious society have ethical and legal obligations. We are obligated to act in an ethical and law abiding manner in our day-to-day activities within our community. It stands to reason that our financial reporting should fall within this expectation as well. So much of our lives and well-being is dictated by the business environment around us. It is where we work, where we invest our life savings, businesses produce the food we eat. With so much trust placed in the hands of corporate industry, there is a profound obligation of company financial reporting to portray an honest and legal picture of the state of affairs of that entity.

Accounting At Its Most Basic

Accounting is “the process of identifying, measuring, and communicating economic information about an organization for the purpose of making decisions and informed judgments” (Marshall, 2003, p. 2). By its very nature, it depends upon honest, accurate account information. Without it, the decision makers could not make informed judgments. These decision makers look to the balance sheet, the income statement, the statement of changes in owner’s equity, and the cash flow statement as legal documentation of how an entity is doing in its quest for profit. If the numbers reported cannot be trusted, then the organization as a whole cannot be trusted. The need for accountability and regulation in the accounting profession is of paramount importance in a world where investors in St. John’s, Newfoundland, Canada can pour their life savings into an entity that exists in Paris, France. It is not a coincidence that accountability and accounting are based upon the same letters. Organizations like the SEC, FASB, and PCAOB have a huge role to play in keeping the process of financial reporting as honest and accurate as possible. That role will only be expanded in years to come.

Standards and regulation

Throughout our time, we have endeavored to regulate our financial industry and to ensure that financial records are recorded accurately and that rules are applied the same for everybody. One organization attempt this regulation is the Financial Accounting Standards Board (FASB). The mission statement of the FASB clearly defines their purpose, which is to “… establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information” (http://www.fasb.org/). In doing so, they have an obligation to not only act ethically, but to ensure that rules and regulations set forth are legal and ethical as well. Otherwise, their purpose is wasted. They put forth proposals in an attempt to standardize the industry as much as makes sense in our global economy. They have an emerging issues task force that attempts to look ahead to deal with new issues before standardizing their activities becomes too difficult. The Securities and Exchange Commission (SEC) is another organization that has the power