The Financial Accounting Standards Board (FASB)

Ethics is defined as the basic or fundamental principles that govern the behavior of people or how an activity is conducted. The reporting of financial information is governed by certain principles and standards i.e. code of ethics. These principles and standards define what should be done in the preparation of financial information. The Financial Accounting Standards Board (FASB) developed a set of standards which are referred to as Generally Accepted Accounting Principles (GAAP). The GAAP states the standards that must be adhered to in the preparation of all accounting information. This allows all businesses report their financial information bases on the standards of the GAAP to allow for comparison of financial reports across firms. The

These qualitative standards include; relevance, materiality, faithful representation, comparability, verifiability, timeliness, and understandability. Relevance requires that financial information be capable of making a difference in decision making by users. Materiality is an aspect of relevance which requires financial information to include only items based on their nature or quantity which will affect decision making. Faithful representation requires that financial information is reported fairly and free from error. Comparability requires that financial information reported by an entity can be compared with the financial information of a similar entity. Verifiability requires financial information to accurately represent the economics of a business. Timeliness requires that financial information be readily available to external users in order to affect their decision making. Understandability means that financial information be presented clearly and in a concise manner making it understandable for users with reasonable knowledge of the business. Application of these qualitative characteristics ensure that financial information is

This code of ethics establishes a framework for all accountants to follow. According to the IESBA professional accountant must comply with the fundamental principles which include; integrity, objectivity, professional competence and due care, confidentiality, and professional behavior. For integrity, an accountant must be honest and upfront in professional relationships. For objectivity, an accountant should not allow bias or conflict of interest to affect his/her professional judgment. Professional competence and due care requires an accountant to act in accordance with technical and professional standards to ensure a client or employer receives competent professional services. Confidentiality requires an accountant to respect the privacy of information. This means an accountant should not share confidential information with others without authority or a legal duty to do so. Professional behavior requires an accountant to follow all regulations and avoid actions that discredit the profession. Based on observations the company is not involved in enough business activities to be making the amount of revenue reported. The financial statements of Western Car Rental do not meet the requirements of the qualitative characteristics of financial information. The income statement is not verifiable and faithfully represented. From observation, it is obvious that