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Practices And Ethics Essay

1177 words - 5 pages

Practices and Ethics
In 2012 GlaxoSmithKline (GSK) paid $300 million in fines for incorrect pricing (The United States Department of Justice, 2012). Five executives of National Century Financial Enterprises were convicted of conspiracy to commit securities and wire fraud (New York Times, 2008). These companies are just two examples of financial fraud and lack of financial ethics in health care organizations. These two stories reinforce the importance of employing ethical and trustworthy financial managers and staff. Financial management is a complicated and detailed job. Generally accepted account principles (GAAP) have three sets of rules, and include 10 basic guidelines and principles ...view middle of the document...

The manager works on a daily basis to ensure effective use of resources and provides supervision. The final element is decision making. The manager has to have accurate information to make effective decisions. Decision making occurs throughout the other three elements (Baker & Baker, 2011). Put simply, the financial manager is concerned with the procurement, allocation, and control of the company’s financial resources (Ready Ratios, 2014).
There are three sets of rules in GAAP. The first rule is the basic accounting principles and guidelines. Detailed rules and standards issues by the Financial Accounting Standards Board (FASB) are the second rule. The final rule is generally accepted industry practices. The purpose of GAAP is to have a method of consistency from year to year in a company’s financial statements. The GAAP attempts to regulate and standardize accounting methods and definitions (Averkamp, 2014). There are 10 main accounting guidelines and principles.
The first guideline is Economic Entity Assumption which is keeping the business transactions of a sole proprietorship separate from the personal transactions of the owner. The second is economic activity measured in United States dollars and only transactions made in U.S. dollars are recorded. Time period assumption is the third guideline. This principle assumes it is possible to report ongoing and complex activities in short, distinct time intervals. Principle four is the cost principle; this refers to cash spent when an item was originally obtained. The full disclosure principle is important to an investor using financial statements. This means financial information must be disclosed with the statement. Going concern principle is the sixth principle, which assumes a company will carry out its commitments, and not liquidate in the near future. The accountant must disclose if he does not think the company will carry out its commitments. The next principle is the matching principle which requires expenses to be matched with revenues. Principle eight is the revenue recognition principle. This means as soon as a product has been sold, or a service performed it is recognized, even if money has not been received. Materiality is the guideline that allows an accountant to violate another GAAP and is based on the professional judgment of the accountant. The last principle is conservatism which helps the accountant break a tie if there are two acceptable alternatives for reporting an item (Averkamp, 2014). If these guidelines and principles are not followed, companies may put themselves at risk for investigation and criminal charges.
Monday, July 2, 2012, GSK plead guilty and is ordered to pay three billion dollars. GSK plead guilty to multiple...

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