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Ethics and profits

Forums › ACCA Forums › ACCA SBL Strategic Business Leader Forums › Ethics and profits

  • This topic has 1 reply, 2 voices, and was last updated 7 months ago by misbahkiran.
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  • April 24, 2020 at 12:10 pm #569148
    star98
    • Topics: 11
    • Replies: 2
    • ☆

    What happens when provisions are over-stated and how is it related to shifting profits from one period to another?

    June 1, 2020 at 6:11 pm #572542
    misbahkiran
    • Topics: 108
    • Replies: 192
    • ☆☆☆

    Hi

    when we recognize provisions we are overstating our expenses for the year. this usually happen when company meets it current year profit target and wanted to shift the effect next year to maintain profit.

    so next year when we do reversal we increase our profits and remove provisions.

    This may against the ethical principal as it may effect the fair presentation of the financial statements and effect the decision of primary users of financial statement.
    if that adjustment is recommended to an accountant by finance director then he must remind him of the ethical code by ACCA and result in additional intimidation and self interest threat.

    I hope that helps

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