Overview

This topic explores the ethical responsibilities of accountants, the importance of Generally Accepted Accounting Principles (GAAP), and the role of internal controls in safeguarding assets and ensuring the accuracy of financial information.

Key Concepts and Controls

• Business Ethics: Professional conduct and integrity in financial reporting, including honesty, objectivity, and transparency.
• GAAP: A standardized set of rules and guidelines developed by the Financial Accounting Standards Board (FASB) and enforced by the SEC for public companies.
• Importance of GAAP: Ensures comparability, reliability, and consistency in financial statements.
• Internal Controls: Policies and procedures designed to protect assets, ensure accurate records, and prevent fraud.
  • Examples: Separation of duties, approval procedures, physical safeguards (e.g., locks, passwords)
• Sarbanes-Oxley Act (SOX): U.S. law passed in 2002 to enhance corporate responsibility and financial disclosures, and combat accounting fraud.
• Ethical Dilemmas: Conflicts between personal gain and professional responsibility (e.g., overstating revenue, hiding expenses)

Step-by-Step Example

Scenario: A cashier is responsible for both receiving cash and recording transactions. Why is this a problem under internal control principles?

Explanation: This violates the principle of separation of duties. Allowing the same person to handle and record cash increases the risk of theft or error without detection.

Quick Tip