Question

How would you respond to this post?

In my personal opinion, trying "to keep accounting earnings growing at a relatively steady pace in an effort to avoid large swings in earnings from period to period" is manipulation. I am a planner by trade and therefore, I manipulate data and spreadsheets daily to enable me to procure parts and build according to customer demand. I think manipulation can be useful but I see red flags when I see the word "avoid" as that displays the true intent of said manipulation. One tool or guideline that can help financial managers is GAAP. The Generally Acceptable Accounting Principles "prescribe how accountants record business transactions and construct financial statements. (Byrd, Hickman, & McPherson, 2013)" Process standardization can be very useful to companies as it better enables consistency in their financial reports. Another tool to help companies ethically manage their finances from period to period is through deferred taxes. "One of the most common examples of this occurs when a company uses accelerated depreciation for tax purposes but a nonaccelerated method of depreciation, such as straight-line, for its reporting. (Byrd, Hickman, & McPherson, 2013)" Using strategies like these enable the company to legally and ethically manipulate their financial reports in the mutual best interest of the company and its shareholders. Cash flow also plays a large part in shareholder wealth. For example, when a company lays people off and reduces costs for a period, it increases stock values and shareholder wealth based on the cost to income ratios.

Answer 1

Personally, i do not favor that Manipulation of financial statement and figure is ethical or legal practice because i see manipulation means decieving the stakeholders like investors, government to make profit. In your post you tell us about GAAP which are common set of accounting principles, standards, and procedures help accounting personnel to do proper accounting professionally. These GAAP rules also help to make accounting more ethical and legal because these are common procedure tend to prohibit activities like manipulation.

If these staretgies by you only focused on increasing or wealth maximization of shareholders then how come it is ethical because these strategies ignore benefits of other stakeholders like customer, employees, suppliers, investors,government etc. like you said that using one accounting method and reporting another it means that it is deception or manipulation which is not ethical at all.

In your example- company lays people off to reduce cost and maximize profit but how about responsibility towards employees as company can not layoff anytime just they want to increase wealth of shareholders. such kind of practice may affect stock value because reputation or brand image of company may be at risk.