Acc 418 Unit 8 Responses
Business Finance
**There are 2 responses. Write a 100 word response for each response.
RESPONSE 1:
Mintz & Morris (2014) go into a lot of detail (in chapter 8, our reading this week) about the difficulties of enforcement for international laws (it had rarely happened by the time this book was published), also highlighting the cultural differences we have with China: They refuse to share financial audits and do not have any interest in transparency. Independence is also often not encouraged in this culture, as the place prime importance of family and community relationships.
Given these facts, I’m not sure that we can ever have a global ethical standard or even achieve total comparability of financial statements. Sadly, if a rule is not enforceable most people will not follow it, it is human nature. I think the only hope is if the global market demands it, but I do not know that most Americans, at least, are even aware of when they are spending their money how it impacts China.
Even the countries that do accept IFRS have different interpretations of it. On page 478 Mintz & Morris (2014) list a few of the issues that can vary in cultures:
1) “Uncertainty avoidance” – this is what level of uncertainty and risk a culture is comfortable with
2) “Individualism” – for example, this is low in China but high in America
3) “Power distance” – this is about how much power is distributed unequally
As Mintz & Morris (2014) explain, over 100 countries have “adopted international standards [IFRS} or some variant of them.” They go on to say that some countries accept it but with certain exceptions. (p 462). The more this is true, the less comparability of financial statements can occur.
Still, to have global comparability, I do think having a global ethical standard would be the best we can.
RESPONSE 2:
Our book discussed the debate about the need for principle-based GAAP verse the present rules-based GAAP. I think for the purposes of comparability (which is key to transparency, because what is the point of being transparent if a stakeholder misinterprets the financial statements?) both are really needed. There are things that are right or wrong in accounting, and there are other things that are more open to interpretation. And for those things that are interpretation principles need to be established. But then you run into the problem of enforceability because one person will interpret a principle one way and another, another way.
I think of the principles-based way like the ethics of the rules. But teaching ethics does not solve all the problems, because even when some are well versed in ethics, they choose fraud. Rules-based GAAP cannot prevent all fraud either because people find ways around it and will always look for them. It is no wonder educated people have different viewpoints about this.
The best possible situation for accounting is for every accountant to be perfectly ethical and knowledgeable about accounting rules and regulations. Neither of these situations will ever be true, unfortunately. So, I think the best America can do is teach ethics, hoping it takes hold of the student, and teach accounting rules and regulations well. And those in management must model good behavior and mentor. Nothing will be 100% effective, but I think this is a good start.
If everyone were a Christian, we would still have sin, but God would enable all of us to be ethical. But since we are a minority, it is our privilege and responsibility to live out our engrained ethical principles amongst those with whom we work, that they might be encouraged by our behavior and glorify God (Matthew 5:16, New American Standard).
