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Misleading Forecasts in Accounting Estimates: A Form of Ethical Blindness in Accounting Standards?

Author

Listed:
  • Wally Smieliauskas

    (University of Toronto)

  • Kathryn Bewley

    (Ryerson University)

  • Ulfert Gronewold

    (University of Potsdam)

  • Ulrich Menzefricke

    (University of Toronto)

Abstract

The current financial reporting environment, with its increasing use of accounting estimates, including fair value estimates, suggests that unethical accounting estimates may be a growing concern. This paper provides explanations and empirical evidence for why some types of accounting estimates in financial reporting may promote a form of ethical blindness. These types of ethical blindness can have an escalating effect that corrupts not only an individual or organization but also the accounting profession and the public interest it serves. Ethical blindness in the standards of professional accountants may be a factor in the extent of misreporting, and may have taken on new urgency as a result of the proposals to change the conceptual framework for financial reporting using international standards. The social consequences for users of financial statements can be huge. The acquittal of former Nortel executives on fraud charges related to accounting manipulations is viewed by many as legitimizing accounting gamesmanship. This decision illustrates that the courts may not be the best place to deal with ethical reporting issues. The courts may be relied on for only the most egregious unethical conduct and, even then, the accounting profession is ill equipped to assist the legal system in prosecuting accounting fraud unless the standards have been clarified. We argue that the problem of unethical reporting should be addressed by the accounting profession itself, preferably as a key part of the conceptual framework that supports accounting and auditing standards, and the codes of ethical conduct that underpin the professionalism of accountants.

Suggested Citation

  • Wally Smieliauskas & Kathryn Bewley & Ulfert Gronewold & Ulrich Menzefricke, 2018. "Misleading Forecasts in Accounting Estimates: A Form of Ethical Blindness in Accounting Standards?," Journal of Business Ethics, Springer, vol. 152(2), pages 437-457, October.
    • Handle: RePEc:kap:jbuset:v:152:y:2018:i:2:d:10.1007_s10551-016-3289-1
    DOI: 10.1007/s10551-016-3289-1
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    3. Zhang, Ying & Andrew, Jane, 2022. "Financialisation and the Conceptual Framework: An update," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 88(C).

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