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The Conflicts of Interest in Accounting and Financial Reporting - Paper Example

Date:  2021-06-04 17:33:03
3 pages  (808 words)
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It has emerged that most users of the financial statements are increasingly becoming concerned about the reality or the potential conflicts of interest that exists between the management of a reporting entity (Bernard & Field 2009, p. 123). This is as a result of the financial statements that are prepared by the management which are significantly biased to favor the management. In this case, external users of financial statements often seek confirmation form other experts like auditors. Financial institutions play important role in financial system. Their knowledge in interpreting the signals and collecting financial information from their respective customers offers them an advantage when producing the information (Fridson & Alvarez 2011, p. 413). As a result of this advantage, they can utilize the information for many purposes thus enjoying economies of scale. Besides, these firms also develop potential costs in terms of conflict of interest. Considering the crucial role that the information has with regard to financial markets, the major focus on this paper is in the areas where conflict of interest emerge when the financial service firms or employees in these firms serve one interest at the cost of another, that is, the interest of customer firms instead of investors that want to purchase securities (Saudagaran 2009, p. 119). The papers is an outline of the research proposal that includes establishing the research question, research objectives, literature review, methodology and the overall structure of the report.

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Research Questions

The research questions for the study include:

What are the conflicts of interest in accounting and financial reporting?

What are the effect that the conflicts of interest in accounting and financial reporting have on users of financial information?

Research Objectives

The research objectives of the study include:

To identify and discuss different conflicts of interest in accounting and financial reporting.

To examine some of the effects that the conflicts of interest in accounting and financial reporting have on users of financial information.

Literature Review

Capital market efficiency is based on availability of a reliable information on the firms condition that have publicly traded stocks (Crockett 2003, p. 233). Different countries, including the United States demands that the publicly traded companies submit their financial reports for auditing, which is done by the independent auditors that are hired at the firms costs (Warren, Reeve & Duchac 2009, p. 216; Coe 2011, p. 115). Independence demands that the auditing process should be done without subjectivity or bias. Auditors are required to confirm whether the public financial reports of clients are prepared by strictly following the Generally Accepted Accounting Principles (GAAP) (McCarthy, Shelmon & Mattie 2012, p. 321). Otherwise, they can offer their opinion in case the respective firm has failed to meet desired standards. Despite the promise of independence, auditing in most countries has remained unfulfilled promise. The example can be exhibited in the Enrons bankruptcy which was attributed to the failure of auditors. In this case, there is diminishing trust in the public to the financial institutions (Belkaoui 2004, p. 117). Accounting and financial reporting has been faced with conflicts of interest, thereby resulting to increased compromise with the process.

Research Methodology

The study will mainly rely on secondary sources of information from online sources and studies that were previously conducted about the topic. A review of several research will be made t help in understanding and developing the study.

Structure of the Report

The structure of the research report will include five main parts. The first part will be introduction that presents brief examination of the study, the research questions, objectives and overall outline of the study. The second part will involve the literature review of the study, the third part will present the methodology employed in conducting the study. The further part will include results and findings and the final part will present discussion of the findings and conclusion.

Reference List

Bernard. & Field, M. 2009. Conflict of interest in medical research, education, and practice. Washington, D.C: National Academies Press.

Belkaoui, A. 2004. Accounting theory. London: International Thomson Business.

Bilgin, M., Danis, H., Demir, E. & Can, U. 2017. Country experiences in economic development, management and entrepreneurship: proceedings of the 17th Eurasia business and economics society conference. Cham, Switzerland: Springer Verlag.

Coe, C. 2011. Nonprofit financial management: a practical guide. Hoboken, N.J: Wiley.

Crockett, A. 2003. Conflicts of interest in the financial services industry: what should we do about them. Geneva London: International Centre for Monetary and Banking Studies Centre for Economic Policy Research.

Fridson, M. & Alvarez, F. 2011. Financial statement analysis: a practitioner's guide, fourth edition. Hoboken, N.J: John Wiley & Sons.

Gross, M., McCarthy, J. & Shelmon, N. 2008. Financial and accounting guide for not-for-profit organizations, seventh edition. Hoboken, N.J. Chichester: Wiley John Wiley distributor.

McCarthy, J., Shelmon, N. & Mattie, J. 2012. Financial and Accounting Guide for Not-for-Profit Organizations. Hoboken: John Wiley & Sons.

Saudagaran, S. 2009. International accounting: a user perspective. Chicago, IL: CCH.

Warren, C., Reeve, J. & Duchac, J. (2009). Financial & managerial accounting. Australia Mason, Ohio: South-Western Cengage Learning.

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