POFM - ethical financial reporting

Question 1

Ethics of a financial manager

Answer 1

Financial managers are required to uphold the highest ethical standards because stakeholders depend on appropriate financial documents to make decisions

1. Be accurate
2. Be transparent
3. Be timely/fast
4. Have integrity

Question 2

Accuracy

Answer 2

Ethical financial managers ensure that all financial publications accurately and fairly reflect the financial condition of the business

Accounting errors and financial fraud damage the interests of shareholders, employees and affect confidence in the overall financial system

Question 3

transparency

Answer 3

Ethical financial documents reflect a company’s performance relative to its peers, its internal strengths and weaknesses

Effective financial managers should not hide or present relevant financial information that is impossible for ordinary shareholders to understand

Question 4

timeliness

Answer 4

Management, investors and other stakeholders require information produced in reasonable time frames to make the right decisions

Even if this information is not favourable or may damage the standing of the business it need to be reported.

Question 5

integrity

Answer 5

Effective financial managers should strive for unimpeachable integrity.

Customers, shareholders and employees should be able to trust a financial managers words

They should not allow prejudice, bias and conflicts of interest to influence their actions

Question 6

how to ensure you are being financially ethical

Answer 6

In order to ensure accuracy, transparency, timelessness and integrity, businesses can undertake the following.

1. Independent audit of business finances
2. Record keeping
3. Reporting practices

Question 7

independant audit

Answer 7

An independent check of the accuracy of financial records and accounting procedures. It was made compulsory in 2001 under the corporations act

financial institutions, shareholders and potential investors rely on independent checks of the auditor before making decisions about the business

Question 8

record keeping

Answer 8

all accounting processes depend on how accurately and honestly data is recorded in financial reports

source documents including receipts and invoices must be created for every transaction, even those in which cash has changed hands

Question 9

reporting practices

Answer 9

shareholders in any private company are legally entitled to receive financial reports annually

public companies must publish a publicly accessible annual report that discloses their financial information for the previous financial year

these reports must not understate profits (to pay less tax or overstate the value of assets) to encourage investors as this is both unethical and illegal