UK and US Financial Reporting Ethics Essay Example | Topics and Well Written Essays - 1500 words

UK and US Financial Reporting Ethics - Essay Example There are several reasons that strongly support this argument. For sometime now, the U.S. Financial Accounting Standards Board (FASB) and its international counterpart (IASB), have made progress in reducing these disparities between U.S. GAAP and IFRS. (IFRS) accounting rules are set to be followed by all public companies falling under the European Union but about 100 other countries are either already applying or weighing them up. In light of the changing nature of the international market, it is important that comparable transactions between competing companies in different regions be reported in the same way or the differences be understood by these companies so as to be able to understand the financial performance of a competitor. â€Å"Ethical values provide the foundation on which a civilized society exists.† (Smith K, 2003). Managers are faced almost on a daily basis a multitude of decisions that have to take into account variables such as profitability, personal advant age and overall benefits to the community, in the overall context of the correctness of these decisions. However, if integrity is allowed to become one of the possible variables, then it is most likely that it will be the first to be sacrificed at the altar of expediency. The purpose of ethics therefore, is to encourage, " [persons] to abide by a code of conduct that facilitatespublic services" (Smith, K 2003). To that end, there are many accounting organizations that have come to realize the need to establish a practical set of ethical guidelines. The Institute of Management Accountants for example, have established an ethics hotline'. As part of the services offered, "ethics counselors offer confidential advice, solace and comfort to management accountants who may have no other place to turn to for help"(Smith, K 2003). It is not known whether there is are any similar arrangements within the United Kingdom, but there have been attempts to address the issue. This is evident from th e response of the United Kingdom Share Holders Association's response to the ' Ethics Standards Board Consultation Paper' of May 2002. In this response, it clarifies the inter-se relationship between professional and corporate responsibilities. The report highlights that, "professional status is an implied contract: to serve society over and beyond all specific duty to client or employee in consideration of the privileges and protection society extends to that profession" (Setting the Agenda for Ethics, 2002). Moreover, many companies are now appointing ethics officers, charged with monitoring the ethical standards of their company as well as for uncovering fraudulent activities. This trend is also partly due to the Sarbanes-Oxley Act enacted in the United States in the wake of the Enron, WorldCom and other scandals. Scope for malpractice exists because accounting practices differ considerably from country to country and the nature of these practices can, and are, exploited through 'creative accounting'. The United States follows to concept of 'substance over form, while the European Union believes in giving a ' true and fair view' of a company's financial status. However, both concepts though in vogue, are subjective in nature and offer considerable scope for manipulation of figures. Depreciation in the United Kingdom for example, is determined according to custom, with "convention and pragmatism, rather than exact rules [determining methods of