assessing the return and risk of stock; (d) directors for overseeing management; and (e) employees for judging employment opportunities. Opportunities in accounting include financial, managerial, and tax accounting. The goal of accounting is to provide useful information for decision making. For information to be useful, it must be trusted. This demands ethical behavior in accounting. Gail must realize that it is her stock ownership (rather than her fears as a new employee of the Chicago office) that causes an ethical concern with regards to auditing this client. As she contemplates the good and bad consequences of her decision, Gail should consider the following. She might already be familiar with this company because she is a stockholder; that familiarity might seem to be a benefit during the first audit of this client. However, the goal of accounting is to provide useful information for decisions. For information to be useful, it must be trusted. Accounting users are less likely to trust an auditor's report if the auditor has a direct financial interest in that client. As a result, to avoid such concerns, the ethics rules that govern auditors prohibit any direct investments in their clients. The preferred path is a course of action that avoids casting doubt on one's decisions. Even the ownership of a single share of this company's stock would cast doubt on her decisions during the audit and reduce the trustworthiness of Morrison's reports. Gail must decline the assignment for this reason. The steps in the guidelines for the preferred course of action taken to make ethical decisions are: identify ethical concerns, analyze options, and then make ethical decision. The Sarbanes-Oxley Act requires documentation and verification of internal controls and emphasizes effective internal controls. Generally accepted accounting principles are a common set of standards applied by accountants. Accounting principles aid in producing relevant, reliable, and comparable information. Four principles underlying financial statements were introduced: cost, revenue recognition, expense recognition, and full disclosure. Financial statements also reflect four assumptions: going- concern, monetary unit, time period, and business entity. The Financial Accounting Standards Board (FASB) is primarily responsible for developing GAAP for use by all U.S. companies. Although the Securities and Exchange Commission (SEC), a government agency, has the legal authority to set GAAP for companies that issue their stock on U.S. stock exchanges, the SEC has largely delegated the task of setting U.S. GAAP for SEC registrants to the FASB. The International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS). The IASB is the group which issues International Financial Reporting Standards that identify preferred accounting practices. Item #1: Recording expenses falls under the expense recognition principle. Item #2:
