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Accounting Ethic

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Accounting Assignment
Wu Rong 1217651 Tutor: Ken Falzon A. In my opinion, the principal concerns of the author are about the existing accounting decisions made by companies does not match the accrual accounting method made from generally accepted accounting principles (GAAP). Companies have various kinds of ways to calculate their earnings by using estimates, therefore, it would lead to different kinds of results after estimating. Hence, there are more and more accounting scandals such as Enron, WorldCom etc. The main reasons for the problem about accounting numbers is that “investor, analysts, and money managers are having an increasingly hard time figuring out what judgments companies make to come up with those accruals or estimates” (Henry, 2004). Also, the more and more complex financial reports which makes people become more confused than ever was the an other reason. Too much jargon, many different categories, ambiguous entries lead to different results of a company’s earnings. B. One reason for investor holding this belief is that every transaction involving cash inflow or outflow need to be recorded on companies’ bank account, which means banks, has bookkept all the cash transactions for the company. If you make up fictitious trading to increase your cash inflow or decrease your cash outflow in order to make your cash flow report looks better, the auditor just need to double check the company’s reports and bank transaction records to figure out whether the result remain the same. Another reason is when you estimate a good sale or predict there are fewer bad debts in the future, these methods could show investors the company was during a strong financial position and performance. However, these kinds of methods cannot change cash flow report because you actually did not receive any cash on your bank account and your cash balance did not match with

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