Accounting for false objectivity

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Accounting for false objectivity

Nov 30, Is Accounting really Objective? Accounting has always been a subject of continuous improvement throughout the years, and as a result many concepts and regulations have come into existence in order for accountants to portray the right picture.

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Due to high stakes involved and importance given to prevent stakeholders from being mislead, accounting bodies and other governing authorities have taken steps to restrict the amount of misstatements that can take place, in other words to make Accounting objective.

But when you think about it is Accounting truly objective? It helps to evaluate the progress made and the current position that an entity is in. Accounting has a set rule of standards and frameworks which have helped to improve the process to some extent.

But above all, the main ideology behind the existence of these frameworks and regulations is that accountants and accounting itself has to objective and unbiased.

Even though these concepts have been created by detailed research and is a result of empirical evidences but in the end its main foundation is by an assumption. So even though accounting might be extensively kept objective but if the theories lead to accountants being subjective themselves then the problem really lies in the initiation of the theory.

G, There is great importance given to Knowledge because theoretically it is through knowledge that assumptions and concepts have been developed and improved. Even though there are certain sources of knowledge laid down to authenticate the fact whether it is justified but it is widely known that knowledge can be true or false regardless of its relevance.

The true premise and false conclusion is given great emphasis when speaking about knowledge, Even if the knowledge is based on true facts and is free from errors there is still a chance that the conclusion made might be wrong.

A simple example is the Historic cost, according to assumptions the normative theory of historic cost came in to existence which valued assets on the financial statements at the cost it was bought but during the implementation it was realized that even though this theory is justified and objective still during rises in prices and other factors it would overstate the income, i.

This shows that the main base of accounting,that is knowledge, could lead to the promotion of subjectivity. An example being the concept of depreciation, the knowledge that assets keep losing their value over a period of time due to certain factors should result in the value of assets to be decreased in the financial statements and this loss of value should be accounted for as an expense thus a concept was made in order to appreciate or depreciate the values in order to present the true economic value of these assets.

Businesses and entity have implemented this concept but as result it has been practiced for other source of benefits.

Accounting for false objectivity

These methods have been used in such a way that benefited the entity or the company as a whole. One example is the Waste Management Scandal of where the Waste Management Company falsely increased the useful life of the assets and increased the salvage value thereby affecting the yearly depreciation expense and the Accumulated Depreciation amount and as a result the income was overstated.

Concepts Even though the purpose of the concept was for true evaluation, it still could lead to subjectivity by the accountants. Many businesses over the years have taken steps to mould and change the figures to bring a positive overlook of the statements thereby motivating stakeholders to take an interest in the company or entity.

Such an example can be seen in the Lehman Brothers Scandal of where, by the help of accounting maneuvers such as the REPO were used in order to show better inflow of cash and thereby, coinciding with their yearly targets at the end of the financial year.

Many such concepts in the accounting theories can be seen to effected by subjectivity merely because of the loopholes provided that have not been yet covered by either the regulatory bodies or the statutory laws.

Accounting as a tool is subjective but when it comes to accountants and the image of a company it has been misguided in order to become subjective in its role due to these areas not being encountered.

Such is the example of the depreciation where entities can extend the useful life, the depreciation percentage charge, etc. The materiality concepts states that those figures which are immaterial, that is figures which will not have a great impact in the financial statements, can be ignored and not stated.

But in the past it has been seen that Entities have followed the concept where a series of immaterial amounts have not been stated leading to a huge number not being accounted for in the financial statements.

This concept is irrelevant as figures which are stated as immaterial rise to such huge amounts and due to this concept it is considered to be allowable. Furthermore in the Citizens Utilities Co Scandal were accused of purposely holding immaterial revenues and then accounting them in the next year helping them to show a growing trend in their revenues.

This practice is contradicting the neutrality concept where accounting has to be practiced in an unbiased way and not understate expenses and overstate income.

The realization concept states that figures should be stated only when they are realized and expected in the foreseeable future, that is if the market value of assets and liabilities have changed during the accounting year it will not be accounted for until or unless the assets or liabilities have been sold or paid off.

This can be seen as contradicting the Faithful representation whereas the figures are not true and changes have not been faithfully represented. John, Critical Analysis Wagner defines objectivity in accounting when the judgments made in accounting are free from perceptions or personal views of accountants.

He critically states that as long as accountants combine there personal judgment or views accounting cannot be characterized as objective.Read this article on Questia. Academic journal article Journal of Finance, Accounting and Management Accounting for False Objectivity.

Questions(with Answers) On Accounting Basics FREE E-book from _____ (Page 1). Home» Accounting Dictionary» What is the Objectivity Principle?

Accounting for false objectivity

Definition: The objectivity principle states that financial and accounting information needs to be independent and free from bias. This means that financial reporting like a company’s financial statements need to be based on evidence and not opinions.

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KPMG and the false objectivity of the ‘Big Four’ says economist and Chief Executive of the Tax Justice Network, Alex Cobham. And so another international firm providing ‘professional services’ has thrown its reputation away, No longer are they accounting firms, but professional services firms.

C2C contends that MAXIMUS has an impaired objectivity OCI by holding both the [Administrative Qualified Independent Contractor] AdQIC task order (through Q2A) and the [qualified independent contractor] QIC task order.

The Sarbanes–Oxley Act of (Pub.L. –, Stat. , enacted July 30, ), also known as the "Public Company Accounting Reform and Investor Protection Act" (in the Senate) and "Corporate and Auditing Accountability, Responsibility, and Transparency Act" (in the House) and more commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law that set new or.

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