Internal Guidelines for Legal and Ethical Requirements
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"The CFO of your company has asked you to develop a set of internal guidelines that will ensure that the finance department adheres to the highest ethical standards for financial forecasting without consideration of any legal requirements, develop a set of procedures that will facilitate this objective."
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Solution Summary
Over a 1000 words to outline important points for a company's internal guidelines that will save them from ethical and legal pitfalls.
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Financial forecasting is the means by which information about an enterprise is communicated. Many different users have need for accounting information in order to make important decisions. These users include investors, creditors, management, governmental agencies, labor unions, and others. Thus the financial reporting should provide information that is:
(en.wikipedia.org)
- Useful to present and potential investors and creditors and other users in making rational investment, credit, and other financial decisions.
- Helpful to present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts.
- About economic resources, the claims to those resources, and the changes in them.
Fundamental qualities
SFAC No. 2 notes that useful information must have the characteristics of relevance, reliability, and comparability/consistency:
Primary Qualities
- Relevancy -- Information should be timely and bear on the decision-making process by possessing feedback and/or predictive value.
- Reliability -- Information must be faithful in representation; free from bias, neutral, and verifiable.
Secondary Qualities
- Comparability -- Even though different companies may use different accounting methods, there is still sufficient basis for valid comparison.
- Consistency -- Deviations in measured outcomes from period to period should be the result of deviations in underlying performance
Set of guidelines and procedures
Principle of Conservatism
The principle of conservatism provides that accounting for a business should be fair and reasonable. Accountants are required in their work to make evaluations and estimates, to deliver opinions, and to select procedures. They should do so in a way that neither overstates nor ...
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