Advanced Accounting

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CHAPTER 1 ETHICAL ISSUES IN ADVANCED ACCOUNTING ANSWERS TO REVIEW QUESTIONS 1. “Cute accounting” is stretching the form of accounting standards to the limit, regardless of the substance of the underlying business transactions or events. “Cooking the books” is fraudulent financial reporting. The Equity Funding Corporation of America fraud is significant for management accountants and financial executives because the fraud was carried out over a nine-year period by at least 10 executives of Equity, several of whom were CPAs with public accounting experience. This fraud furnished clear evidence of the need for ethics codes for management accountants and other financial executives. Four components of ethical conduct for management…show more content…
The chief financial officer and the controller of an SEC registrant enterprise should view the obligation to sign the registrant's Form 10-K and Form 10-Q reports as an affirmation that the reports comply with the requirements of the Securities Exchange Act of 1934 and the rules and regulations of the SEC thereunder. Due professional care obligates the signatories of the reports to ascertain, to the best of their ability, that the reports are free from material errors, either of omission or of commission. One might agree with the Walters statement by pointing out that management accountants possibly have inherent conflict of interest problems in that their salaries and other remuneration such as bonuses and stock options depend in some measure on the financial results that they report for their employer enterprises. However, the Institute of Management Accountants, in developing Standards of Ethical Conduct for Members; the Treadway Commission, in specifying the obligations of chief accounting officers; and the Securities and Exchange Commission, in issuing Accounting and Auditing Enforcement Releases No. 93 and No. 538, certainly must have given consideration to the concerns raised by Walters and concluded that the management accountant's obligations to the public override any excuse for the accountant's succumbing to the temptation to place his or her interests, or the interests of others in the enterprise, above the public interest. In
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