Page 123 - (DK) The Business Book

MAKING MONEY WORK 12 1
121
See also: Hubris and nemesis 100–03 ■ Profit before perks 124–25 ■ Making money from money 128–29 ■ Accountability
and governance 130–31 ■ Morality in business 222 ■ Creating an ethical culture 224–27 ■ The appeal of ethics 270

The alternative to
...but some rules rules is a principled
The rules set out ignore morality— approach based on a
minimum standards... “playing by the rules” “true and fair view”
may not be enough.
of a company’s accounts.

But without statutory
Good companies and
accountants consider protection, individuals can
rules plus morality. ignore principles and profit
from immoral actions.

turned out to be $3.3 billion, up with different figures, even UK’s newly formed Accounting
demonstrating that the company though the underlying data that Standards Board, which in turn
had erred on the side of caution. they are analyzing is the same. developed new accounting rules
In 1992, British banking analyst in an attempt to minimize the
Accounting for profit Terry Smith published a book scope for “creative accounting.”
An accountant who follows safe called Accounting for Growth. Today, most countries around the
practices sleeps well, but may This publication set out the world follow the rules laid down by
struggle to climb the corporate remarkable array of opportunities the International Financial Reporting
ladder. When the stock market is for publicly traded companies to Standards (IFRS). As a consequence,
full of optimism (a “bull market”), provide an artificial boost to their the income statements and balance
there are intense pressures within stated profit levels. The book had a sheets of companies in most
companies to push the stated profit huge impact, and influenced the countries follow the same format. ❯❯
level to the highest feasible point.
This could be considered an odd
statement, since profit might seem
to be a simple matter of fact.
However, the calculation of profit
(which is effectively an estimation)
is underpinned by a series of
assumptions, and a company’s
stated profit is effectively a
moveable figure. Different
accounting teams may come

Accountants must decide how
cautious they are going to be when
reporting a company’s financial status,
since they may be under pressure to
boost the stated level of profits.