The Continuum from Legitimacy to Fraud Research Paper - 9

The Continuum from Legitimacy to Fraud - Research Paper ExampleThis essay demonstrates that the suitability of an accounting policy under the requirements of Generally authorized Accounting Principles (GAAP) draws a line on the continuum that distinguishes legitimate earnings prudence from fictitious accounting transactions. The process of determination of whether or when earnings management traffic do cross the line is essentially difficult to ascertain legitimacy to fraud, especially in certain situations on financial transactions. Legitimate earnings management in an entity translates to quality in earnings but with no reference to whether there has been a fair presentation of the financial statements that are convenient to the broadly speaking accepted accounting principles. Auditors roles with regard to quality of the entitys earnings are important though their responsibilities are spelled out in detection and reporting of fraud. Auditors compulsion to address their judgmen ts about quality and the acceptability of the entitys principles of accounting and all the financial estimates that underlie the statements. Auditors should always inform the committee on the scrutinize on the unacceptability approach at the end of the accounting period so as to improve the overall effectiveness of the corporate body on audit committees. The communication between the auditors and the committee on the audit is seen as an avenue for enhancing clear understanding of the quality of earnings and all the issues related to it hence improving the level of financial reporting. ... ?42 4.0 move 4 Overview Ethical Considerations..45 4.1 Recommendations46 4.2 Corporate mechanisms to avoid double-dealing Earnings Management.50 4.3 Board oversight.51 4.4 away Audit and internal Audit reporting to Audit committee of Board..52 4.5 Whistleblower procedures.52 4.6 Code of conduct and ethics of Financial Officers.53 4.7 Philosophical Stance.54 4.8 References..55 Question 1 Overvi ew Theoretical and Conceptual Knowledge Introduction (Overview) Earnings management entails an extensive range of illegitimate and legitimate actions undertaken by companies and business organizations managements, affecting the sinless legal entities overall earnings. In understanding this phenomenon of earnings management, its important to have a wide overview of the legitimate managerial activities carried out in an entity and the fraudulent reporting that is spearheaded by accountants and the entire management of an organization. The management of earnings leans on the credibility of financial information which is adversely affected by legal or illegal undertakings. All managerial activities within an organization have various implications and potential effects on earnings management.