Text 2 Users of Accounting Information

Most of the material in this book describes business situations, but the principles of accounting apply to the financial considerations of individuals as well. The text discusses the range of people and groups who use accounting information.

Individuals. People use accounting information in day-to-day affairs to man-age their bank accounts, to evaluate job prospects, to make investments, and to decide whether to rent or to buy a house.

Businesses. Managers of businesses use accounting information to set goals for their organizations, to evaluate their progress toward those goals, and to take corrective action if necessary. Decisions based on accounting information may include which building and equipment to purchase, how much merchandise inventory to keep on hand, and how much cash to borrow.

Investors and Creditors. Investors provide the money that businesses need to begin operations. To decide whether to help start a new venture, potential investors evaluate what income they can reasonably expect on their investment. This means analyzing the financial statements of the new business. Those people who do invest monitor the progress of the business by analyzing the company's financial statements and by keeping up with its developments in the borrower's ability to meet scheduled payments. This evaluation includes a projection of future operations, which is based on accounting information.

Government Regulatory Agencies. Most organizations face government regulation. Government regulation agencies base their regulatory activity in part on the accounting information they receive from firms.

Taxing Authorities. Local, state and federal government levy taxes on individuals and businesses. The amount of the tax is figured using accounting information. Businesses determine their sales tax based on their accounting records that show how much they have sold. Individuals and businesses compute their income tax based on how much money their records show they have earned.

Non-profit Organizations. Non-profit organizations – such as churches, most hospitals, government agencies, and colleges, which operate for purpose other than to earn a profit – use accounting information in much the same way that profit-oriented businesses do. Both profit and non-profit organizations deal with budgets, payrolls, rent payments, and the like – all from the accounting system.

Other users. Employees and labour unions may make wage demands based on the accounting information that shows their employer's reported income. Consumer groups and the general public are also interested in the amount of income that businesses earn.

Text 3 Ethical Behavior of Accountants

Several accounting organizations have formulated codes of ethics that govern the behavior of their members. "Code of Professional Conduct" adopted by the American Institute of Certified Public Accountants reads:

"Membership in the American Institute of Certifies Public Accountants is voluntary. By accepting membership, a certified public accountant assumes an obligation of self-discipline above and beyond the requirements of laws and regulations…"

… In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.

… Members should accept the obligation to act in a way that will serve the public interest, honour the public trust, and demonstrate commitment to professionalism.

… A member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability.

… To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.

… A member should maintain objectivity and be free on conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services."

Some business firms have also developed codes of ethics for their employees to follow. But there is something more than merely making sure you are not violating a code of ethics. Most of us sense what is right and wrong. An accountant's most valuable assets is his or her reputation.