7-1 Investor Report

Running head: Discussion 2

Discussion 2

Discussion week6

Objectivity and independence in accounting forms a crucial principle. Independence refers to the ability of an accountant to work without bias or discrimination against a particular party while favoring the other party. Objectivity refers to the ability of the accountant to perform a balanced assessment of the required conditions as per the requirements of the law. The two concepts combine to form one single principle in that each of the concepts requires the other for efficiency in performance of the duties (Haeridistia & Fadjarenie, 2019).

Objectivity and independence bring trust and credibility to the practitioners. By complying to the principle, the practitioners perform their duties without favoring any party thus represents the true value of the organization and enhance validity of the financial statements. The principle brings value to the business by ensuring there is accurate reporting standards and procedures that represent true value of the business. Also, it prevents malpractice that can lead to decline of the company or business. The principle creates value to the clients in that they can rely on the financial statements to make decisions concerning the business such as making investments.

One of the areas in accounting in which the principle is used and where a difficult situation may rise is auditing which may be affected by familiarity threat. This may be a situation where a practitioner is required to investigate or audit a company whose owner or executive is a close relative. In such cases, the practitioner may be biased in trying to favor the close client. The practitioner is supposed to avoid such circumstances by disclosing the relationship. However, this may not happen particularly if there is malpractice that can attract legal actions against the relative (Bafghi, 2021).

Reference

Bafghi, A. A. T. (2021). Professional Ethics and Behavior in Accounting. International Journal of Multicultural and Multireligious Understanding, 8(1), 545-555.

Haeridistia, N., & Fadjarenie, A. (2019). The effect of independence, professional ethics and auditor experience on audit quality. International Journal of Scientific & Technology Research, 8(2), 24-27.

Teacher feedback

Hi Alexis. You did an excellent job on your main response posting! Auditors have such an important job because much of the public’s perception and trust relies on their integrity and their ability to provide fair and useful information to outside stakeholders.

 

Here’s some additional food for thought…

Over the past twenty years or so, we’ve seen more and more organizations that attempt to give managers a vested interest in the success of the business. This often takes the form of incentive based compensation such as incentive bonuses or stock options. While these techniques do help to better align the employee’s personal goals with the goals of the company, there can be some negative consequences as well.

 

Class, what do you think are the key advantages and disadvantages to share-based compensation plans (stock options)?

Brandy