Financial Reports

Ethical dimensions of financial accounting with respect to keeping of two sets of records, one for internal purposes only and the other for internal taxation purposes. Financial accounting, as stated by Garrison, is concerned with providing information those people outside an organization. This includes preparation of financial reports showing the company’s past financial performance which will be the basis for additional investments for stockholders, capacity to pay off loans for creditors or banks, imposing correct government taxes as mandated by law, etc.

Financial reports, therefore, should be done accurately and with utmost truthfulness to avoid misconstruction due to omission or misstatement as stated in the International Federation of Accountants Code of Ethics. However, there are some who do not conform to this Code. Some companies practice preparation of two sets of financial reports at the end of the fiscal year, one for internal purpose and the other to be used and submitted for internal taxation purpose. Usually, if the company would like to attract additional investments from its stockholders, incomes are bloated.

On the other hand, to avoid paying high taxes or even pay no taxes at all, financial statements are manipulated to reflect a lower or negative net income, which will be the basis for the computation of the taxes to be paid by the company. Whether for stockholders or for taxation, I strongly condemn such practice. This does not only violate the Code of Ethics of IFAC, such practice, if done continually, could even be a start of the eventual downfall of any company due to loss of its credibility and integrity.

Thus, there exist major financial scandals that lead to collapse of business giants like what happened to ENRON. Further, leaders of the company may suffer from huge penalties or even jail terms, if found guilty of violating the code. Sadly, our country’s system on taxation and how the government use, or should I say, misuse collected taxes opens a lot of controversies and issues, which is being used by some companies to justify the practice of preparing a different financial report for taxation purpose.

Corruption and issues on tax evasion by big companies are only a few examples why some companies validate this act. Corporate governance, as they say, should start first with the government, ethical behavior should be practiced first by our government leaders. This is the main campaign of incumbent President PNoy. The Code of Ethics on Integrity Rules states: “A member must not make, prepare, or certify, or permit or direct another person to make, prepare or certify, any statement which the member knows, believes or ought to