Ethical Considerations in Financial Reporting: A Case Study Analysis

This report presents a case study analyzing ethical considerations in financial accounting, specifically focusing on the actions of a Chief Financial Officer (CFO) at Baker Braswell. The CFO's decision to reduce warranty expenses to inflate profits and meet stakeholder expectations is examined in relation to Generally Accepted Accounting Principles (GAAP). The report highlights the ethical obligations of accountants to uphold GAAP standards, even when faced with pressure to manipulate financial statements. The analysis emphasizes the importance of maintaining integrity and honesty in financial reporting, the potential conflicts between GAAP and other considerations, and the accountant's responsibility to challenge unethical accounting practices. The study references relevant literature to support its arguments, underscoring the significance of ethical conduct in the accounting profession to ensure accurate and reliable financial information for stakeholders. The report concludes that the accountant has an ethical obligation to object to the CFO's actions, as they violate the principles of accurate and transparent financial reporting under GAAP.

Running head: BUSINESS AND SO
Business and So
Name of the Student:
Name of the University:
Authors Note:

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Contents
Ethical consideration:......................................................................................................................2
Observation:.....................................................................................................................................3
References:......................................................................................................................................4

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Ethical consideration:
An accountant in United States of America is bound to comply with the professional
accounting standards while discharging their duties and responsibilities. The accountants shall
follow Generally Accepted Accounting Principles (GAAP) in preparation and presentation of
financial statements and maintenance of books of accounts of an organization. The only standard
is to be followed is the GAAP by the accountants to ensure that the books of accounts and
financial statement are correctly and truly reflecting the financial position and performance of an
organization as on a particular date (Duska, Duska & Kury, 2018).
An accountant is expected to maintain highest standards of integrity and honesty in complying
with the standards and principles of GAAP while maintaining and keeping the books of accounts
of an organization. The ethical consideration to an accountant is whether he is complying with
relevant accounting standards and principles as per GAAP. Even in a situation where there is any
conflict between the principles of GAAP and other aspects the accountant must comply with
principles of GAAP. The obligation of an accountant is towards the various stakeholders of an
organisation. The stakeholders of an organization are expected to take important business
decisions on the basis of the financial performance and position an organization reflected in the
financial statements of the company. Thus, it is the responsibility of the accountants to ensure
compliance with the applicable accounting standards principles as per GAAP in the United
States of America.
In this case the decision of Chief Financial Officer (CFO) of Baker Braswell (Braswell) to lower
the amount of warranty expenses by changing the existing accounting policies is mainly to show
an increase amount of profit than the actual profit earned by the company to keep the

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stakeholders’ expectation high. The organization, i.e. Braswell follows GAAP to prepare and
present its accounts and financial statements. Over the years the organization has followed a
particular policy of providing warranty expenses on certain pre-determined standards. GAAP
allows changes in accounting policies and principles where such changes are essential to portray
a true and fair picture of the organization and in case such changes is required as per the law that
governs the operations of the organization. In this case the reason to reduce the warranty
expenses in the books of accounts of the company by the CFO is mainly to show a higher
amount of profit in the income statement of Braswell tan the actual amount profit earned by the
company (Ho, Li, Tam & Zhang, 2015).
Observation:
It is clear that the decision of CFO of Braswell is not on any justified basis thus, it is the
responsibility of the accountant to make his reservation on the accounting treatment of showing
less warrant expenses by the CFO. Thus, there is definitely an ethical consideration here for the
accountant which he needs to deal with by raising voice against the accounting treatment
proposed by the CFO of Braswell.

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References:
Duska, R. F., Duska, B. S., & Kury, K. W. (2018). Accounting ethics. Wiley-Blackwell.
Ho, S. S., Li, A. Y., Tam, K., & Zhang, F. (2015). CEO gender, ethical leadership, and
accounting conservatism. Journal of Business Ethics, 127(2), 351-370.