Accounting Ethics – The Importance of Ethical Practices in Business and Personal Finance

What is ethical accounting? The idea of accounting ethics deals with the moral and values-based judgments and decisions an accountant or accounting agency confront daily in their practice. Due to the nature of their work as communicators of financial information to business managers, shareholders, and the general public, as well bookkeeping and auditing of business entities, accountants and accounting agencies are held to the highest standards of transparency and morality in regards to their research and the information they convey. Accounting can be used as a way to study how and why a business may succeed or fail, but above all it is a public service; those who practice it must make judgments and decisions that can sometimes supersede the interests of their clients in favor of the interests of the public at large.

Failure to apply ethical standards to accounting creates the opportunity for manipulation of facts and information that, if used to mislead, could cause a person to invest under false pretenses, or a business to represent its finances fraudulently to its shareholders. It is of the utmost importance that the public be able to trust accountants and accounting, because their financial future, and that of their family or business, could be at stake.

Why is it important that accountants and accounting firms be ethical?

Over the years there have been several large accounting scandals in the United States, and in the world at large, which caused private investors and public shareholders to lose billions of dollars, and giant businesses and accounting firms to fold, because of falsified or incorrect information given out about the companies in which the money was invested. The Enron scandal is perhaps the most recent and glaring example of unethical accounting causing widespread negative effects, including the loss of $25 billion in shareholder assets, the closure of the Arthur Anderson auditing firm, and the subsequent loss of 85000 jobs when the unethical practices were reported and the company dissolved.

Ethical accounting is not only important to private businesses or individuals for reliable information about their respective financial states, but has a responsibility to the public to provide transparent evaluations of publicly held business entities. Ethical accounting can help eliminate the serious problems raised when incomplete or incorrect information about business or individual is disseminated, saving money and jobs and helping to increase stability in financial markets.

Real Estate – A Very Complex Business and Surely Not As Easy As It Seems

The term real estate includes land and buildings. It is the same as realty or “real” properly. People often tend to look at investment in realty business as very simple. After all, it just means buying property, making some additions to that before selling the same to make profit in the process. Otherwise, one may just rent it out and derive regular income. However, in fact this is a very complex business and surely not as easy as it seems. Should you be considering an investment in realty, here are a few questions you should answer before plunging into this business:

Extra Cash

Do not get carried away by the talks of the experts. You will need a good amount of money for investing in realty business. Well, you can get your property totally financed by financiers but this kind of financing often works out exorbitantly expensive and carries a huge amount as service charges along with finishing costs.

Even if you can manage ten to twenty percent as down payment, you get better returns and you can see your overall debt reduced.

Locked Funds

Remember, real estate will not offer immediate gains. Your money would stay locked in for a considerable period, and you will not find it easy to withdraw the same in case of any financial emergency. It will be sensible on your part to keep funds for any eventuality in the family and invest the rest.

Patience

You will need to wait for some time before your investment in property starts appreciating. You can expect an average appreciation of eight to ten percent for homes, but there is no guarantee for that. Overall, real estate is generally reliable, safe investment but it takes time to appreciate. If you are thinking of making a quick buck, you should look for other avenues.

Time

Investment in realty is very time-consuming, compared to investing in mutual funds. Investment in real estate demands you to search for properties, inspect them, and oversee sales. If your idea of investment is just to make transactions using your phone and laptop, investing in property is not your best option.

Vigor

Energy and vigor are extremely important elements in dealing with real estate. Ever so, many factors like dealing with property maintenance with tenants or spending time, energy and money on improving a property for a profitable re-sale involve spending energy. If you are considering involving yourself in real estate, make sure that you have the time and energy for the job.

How does real estate business appeal to you?

Different people respond diversely to real estate business. You must retrospect if the realty business interests you, and you must search within yourself on how you perceive real estate, whether the vicissitudes interest you or whether the subject bores you. Do not venture into the property business if it fails to motivate you.

Music Business – Airline Business and Cashflow Problems

Recently I watched a documentary on the famous UK no-frills airline owned by Sir Freddie Laker and the ensuing problems that brought the business to a standstill. One might instinctively ask what this has to do with the music business but the problems faced by Skytrain are very similar to those faced by sections of the music business.

Many within the music business can always learn from other industries by seeking to understand the key challenges, business ethics, successes and other aspects that make an industry great.

Pinnacle one of the leading music business distributors went into bankruptcy making about 400 labels homeless. At the same time SPV, a leading distributor in Germany one of the major territories of the world also cried out to be rescued. As someone who has worked within an independent distribution company, the areas of problems will be very close to the cash flow issues as the key reason for their demise. Incidentally Skytrain also suffered from similar problems.

So what are the major problems to watch out for within a music business that were also similar to the way Skytrain went out of business?

Cash flow. Sir Freddie Laker’s Skytrain ran into problems when it could no longer pay its bills due to various cashflow issues. This coupled with the fact that they type of borrowing incurred by the company of a kind that could be demanded within days. When this demand was placed the business was unable to meet its immediate debts.

In the same way, distributors are always subject to long credit periods taken (not given) by the independent stores who also struggle to keep up with the download industry. As a matter of fact the years 2002 onwards saw a great number of UK stores leaving the high street. This movement included companies like Tower Records. With the slow repayment of debt by the indie stores and the interest rate repayments by the distributors to the banks, many simply could not survive.

It is noted that cash is king. Whoever has the liquid cash will always be in a better position than the one who does not.

So how do we ensure that a music business is always in a cash rich position? Here are 3 things to do:

  • Ensure you are paid early- Most people in business want to hold on to your money for as long as possible and pay their bills as late as possible. It is in the interest of the music business to offer as many incentives to get people to pay quickly. Discounts for early payments and penalties for late payment will always produce good results.
  • Get longer credit periods- In business, efforts must be made to secure repayment terms that are more filling to the operations of the business and of the industry in which it operates. Where people do not pay their bills late it is important that they also have a longer payment time otherwise they could simply be paying interest on behalf of those who owe money.
  • Get cheaper debt- The cheapest debts have to be family money followed by equity financing and then bank/lending institutional financing. The cheaper the debt the greater the impact on cashflow. More expensive debt means higher payouts and less money in the business.