Ethical and Legal Obligations
Financial statements are a tool that management can use to discuss, evaluate, and formulate financial decisions to maximize and ensure the financial security of the company. Many of today's businesses have stockholders who have a financial stake in the company, as well as, senior company officers who own company stock and have a personal and financial interest in the value of the company. The pressure to reflect maximum profit and value for stockholders, as well as serve greedy individual agendas, has created unethical and criminal accounting activity in corporate society. This has caused much public skepticism and mistrust of the accounting field and the financial sector, and has led to an increased awareness by governing boards and governmental agencies.
Marshall, McManus and Viele (2004) state "in a broad sense, the theory of accounting is the process of identifying, measuring, and communicating economic information about an organization for the purpose of making decisions and informed judgments" (p. 5). This process results in financial statements and is done by public, industrial or government and not-for-profit accountants. Just as there are different types of accountants, there are also various types of accounting ? financial, bookkeeping, managerial/cost accounting, auditing-public accounting, internal auditing, income tax accounting, and governmental and not-for-profit accounting.
The basic assumptions of accounting include the following:
1. Separate entity assumption ? the business is an entity that is separate and distinct from its owners, so that the finances of the firm are not co-mingled with the finances of the owners.
2. Going concern ...