Discuss the pressures placed on an organization's accounting department to maintain creative bookkeeping techniques.

Question

What will be an ideal response?

Answer 1

Corporations try to manage their expansion at a steady rate of growth. If they grow too slowly or too erratically from year to year, investors may see these groups as unstable or in danger of falling behind the competition. If corporations grow too quickly, investors may develop unrealistic expectations of future growth. This inflated outlook can have a devastating effect on a corporation's stock price if quarterly numbers are not met. Investors have shown a pattern of overreacting to bad news by dumping their stock.
It is legal to defer receipts from one quarter to the next to manage tax liability. However, accountants face ethical challenges when requests are made for far more illegal practices, such as falsifying accounts, underreporting income, overvaluing assets, and taking questionable deductions.