Ethical Dimensions of Financial Accounting with Respect to the Keeping of Two Sets of Records.
Ethical Dimensions of Financial Accounting with Respect to the Keeping of Two Sets of Records.
Ateneo Graduate School of Business
Managerial Accounting
Assignment 1
Submitted to:
TSMANACC
By AR2012
Financial accounting serves to provide useful financial information to help stakeholders make economic decisions through financial reports. There are various stakeholders that use financial reports to promote their varying interests. Among the various stakeholders with varying interests are management and tax authorities. Management has a fiduciary duty to its shareholders in maximizing profits as they are the appointed “steward” of the organization’s resources and affairs. Management use financial accounting to assist them in making business decisions. Tax authorities on the other hand use financial reports prepared by the management, as a basis for computing taxes due to the government to foster its initiatives.
If the management has a duty to maximize the profits to its shareholders, then it should be seen as unethical to consider the interests of anyone else.[i]
Paying higher taxes could be seen as something that is in breach of management’s duty to the shareholders if the organization could have the opportunity to pay lower or zero tax through effective tax management. Lower performance result means lower taxes payable to tax authorities and higher shareholder’s return. While paying correct taxes will benefit the general public, the management has neither duty nor legal obligation to foster the interest of parties not privy to its affairs. In this pursuit, management is inclined to keep two sets of records, one that present accurate performance result and another record that support lower performance results.
It should also be seen as unethical for the tax authorities to “use” the financial reports prepared by management in fostering tax authorities’ interest (i.e. to use as a basis for computing taxes). If parties
Ateneo Graduate School of Business
Managerial Accounting
Assignment 1
Submitted to:
TSMANACC
By AR2012
Financial accounting serves to provide useful financial information to help stakeholders make economic decisions through financial reports. There are various stakeholders that use financial reports to promote their varying interests. Among the various stakeholders with varying interests are management and tax authorities. Management has a fiduciary duty to its shareholders in maximizing profits as they are the appointed “steward” of the organization’s resources and affairs. Management use financial accounting to assist them in making business decisions. Tax authorities on the other hand use financial reports prepared by the management, as a basis for computing taxes due to the government to foster its initiatives.
If the management has a duty to maximize the profits to its shareholders, then it should be seen as unethical to consider the interests of anyone else.[i]
Paying higher taxes could be seen as something that is in breach of management’s duty to the shareholders if the organization could have the opportunity to pay lower or zero tax through effective tax management. Lower performance result means lower taxes payable to tax authorities and higher shareholder’s return. While paying correct taxes will benefit the general public, the management has neither duty nor legal obligation to foster the interest of parties not privy to its affairs. In this pursuit, management is inclined to keep two sets of records, one that present accurate performance result and another record that support lower performance results.
It should also be seen as unethical for the tax authorities to “use” the financial reports prepared by management in fostering tax authorities’ interest (i.e. to use as a basis for computing taxes). If parties