The investigation into the affairs of fitness solutions showed and number of problems with the accounting systems.
– I have chosen the following two problems to determine their ethical in accounting.
Fitness solutions constantly overstate purchases to produce high cost of sale s and lower net income for income tax purposes.
In the first case there have been constantly overstating purchases with the aim of reducing profit which is taxable. This act is an ethical as well as illegal. The company is committing fraud against the state by understating the profits if they are caught they will be prosecuted which may be very costly to the Organization in terms of monetary and image wise.
It is unethical for any professional accountant to participate in activities that are disrepute to the profession of accounting therefore the accountant who is involved in this activity of understating profit by overstating cost of sales will be punished by the Accountants regulating Board.
The error committed here will understate the profit to any person who will lie on these Accounts.
–Fitness solutions records costs related to developing a customer base as a prepaid assets (instead of expenses)
The second case where the fitness solution records costs relating to customer development as prepaid assets instead of Expenses will increase the profit or overstate the profits giving a false impression about the financial position of the company. If any person relaying on these accounts and makes a serious financial decision may sue the company for fraud. This act of mis-recording expenses as prepaid assets in itself is unethical. .However it may be not illegal depending on the argument put forward by the management of this company.
Ethical activities are those activities which are morally correct to the situation under consideration. For an accountant is expected to behave or act as an accountant with similar qualification under similar conditions.
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London, Thomson Learning.
Porter,B., Simon, J. and Hatherly, D.J. (2003). Principles of External Auditing (2nd edition),
William F. Messier, Jr, (2008),” Auditing & Assurance Services”, 3rd Edition, page 45