Depending on the type of business, the facts and circumstances surrounding accounting decisions may not always make them clear cut, and yet the decision may determine whether the company shows a profit or a loss in a particular period! What are the factors that influence business and accounting decisions, and how should these factors be weighed? Generally, three factors influence business and accounting decisions:
The economic factor states that the decision being made should maximize the economic benefits to the decision maker. Based on most economic theory, every rational person faced with a decision will choose the course of action that maximizes his or her own welfare, without regard to how that decision impacts others. In summary, the combined outcome of each person acting in his or her own self-interest will maximize the benefits to society as a whole.
The legal factor is based on the proposition that free societies are governed by laws. Laws are written to provide clarity and to prevent abuse of the rights of Individuals or society. Democratically enacted laws both contain and express society’s collective moral standards. Legal analysis involves applying the relevant laws to each decision, and then choosing the action that complies with those laws. A complicating factor for a global business may be that what is legal in one country might not be legal in another. In that case, it is usually best to abide by the laws of the most restrictive country.
The ethical factor recognizes that while certain actions might be both economically profitable and legal, they may still not be right. Therefore, most companies, and many individuals, have established standards for themselves to enforce a higher level of conduct than that imposed by law. These standards govern how we treat others and the way we restrain our selfish desires. This behavior and its underlying beliefs are the essence of ethics. Ethics are shaped by our cultural, socioeconomic, and religious backgrounds. An ethical analysis’s needed to guide judgment for making decisions.
The decision rule in an ethical analysis is to choose the action that fulfills ethical duties responsibilities of the members of society to each other. The challenge in an ethical analysis is to identify specific ethical duties and stakeholders to whom you. Owe these duties. As with legal issues, a complicating factor in making global ethical decisions may be that what is considered ethical in one country is not considered ethical in another. Ethical training starts at home and continues throughout our lives. It is reinforced by the teaching that we receive in our church, synagogue, or mosque; the schools we attend; and by the persons and companies we associate with. A thorough understanding of ethics requires more study than we can accomplish in this book. However, remember that, when making accounting decisions, do not check your ethics at the door.
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