ACCA SBR ^INT Syllabus A. Fundamental Ethical And Professional Principles - Compliance with Accounting Standards - Notes ^{2 / 11}

Compliance with Accounting Standards

These financial statements must follow two main rules:

Company laws
Accounting standards like IFRS

In very rare cases, a company might not follow these rules, but if that happens, they have to tell everyone and explain why.

In some situations, companies can make choices about how they prepare their financial statements.

For instance, they might decide how to measure the value of their property. The choices they make should be explained so that people reading the financial statements can make decisions.

Fraud

Fraud is when someone does something on purpose to get an unfair advantage. It's not just wrong; it's also against the law.

Out of all the different types of fraud employees can commit, messing with the company's financial statements is the most expensive. But not all fraud in financial statements is the same.

Usually, the big bosses, like the senior managers, are the ones who do this because they have control over the financial statements and can benefit a lot from it.

Here are some common ways they do it:

Making the company's sales look bigger than they are by recording fake sales or counting a sale before it really happens
Making expenses seem lower than they are by delaying expenses to a later time or wrongly counting something as an asset instead of an expense
Making the company's assets seem more valuable than they are by not writing off money they can't collect, keeping old stuff in stock, or saying some things are worth more than they really are.
Not recording some things they owe (like bills they have to pay) or saying they're not debts.
Twisting accounting rules in a tricky way that helps them hide fraud.
Leaving out or lying about important information that can confuse people who read the financial statements

Sometimes, people in powerful positions, like company directors, use secret information to get an advantage when they buy or sell shares and securities.

This is called insider trading, and it's a big problem when people abuse their trust and break the rules