That would be too costly a balance must be maintained

This preview shows page 3 out of 3 pages.

However, full disclosure does not mean that everything must be disclosed.  That would be too costly.  A  balance must be maintained between the cost of disclosing information and its relevance to users.  Basically, if the information will make a difference in investors’ or creditors’ decisions it should be  disclosed.  Therefore, the criterion for disclosure is based on value judgment rather than objective  facts. (5)  The Conservatism Concept Accountants follow methods and procedures that yield the lesser amount of net income or net asset  value.  Of an accountant faced two methods of handling a particular event, he /she tends to use the  method which understate the net income or net asset.  This is done to protect the firm from uncertain  risk of loss.   Thus, conservatism is usually expressed by the statement “anticipate no profit but  provide for all losses”.  Such an attitude of pessimism has been due in part to the need for an offset to  the optimism of business management. c. c. Review the fraud triangle discussed in Chapter 2 and comment on which of the features are evident in  this case. Based   on   the   Fraud   Triangle,   discussed   in   Chapter   2,   the   features   of   this   case   are   indicative   of  rationalization (the idea that misreporting net income by underreporting expenses is good for the company)  and opportunity (the idea that misreporting net income will allow the company to be sold at a premium so  that Mr. Blowhard can retire). In terms of rationalization, only a change in belief and boundary systems,  colloquially referred to as a firm’s corporate culture and “tone at the top” respectively, can create a means by  which an employee like the accountant would resist Mr. Blowhard’s insistence on understating expenses and  overstating net income. In terms of opportunity, a strong system of internal controls coupled with a means  by which an employee can report fraudulent actions, would act as a further deterrent to Mr. Blowhard’s  insistence on amortizing a capital expense over a 10 year period. 3
Image of page 3
You've reached the end of this preview.
  • Spring '11
  • Abner
  • Revenue, Wilson Blowhard, Mr.   Blowhard

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern