Final answer:
Ethical considerations in accounting require non-current assets (NCA) to be reported accurately and depreciated according to their useful lives, ensuring that their book value reflects a more true value. Deliberately overstating or understating NCA or depreciation goes against ethical and accounting standards and can amount to fraud.
Step-by-step explanation:
The question deals with the ethical considerations of non-current assets (NCA) and depreciation in financial reporting. According to accounting principles, non-current assets should be reported at their cost less any accumulated depreciation. This method ensures that the asset's book value reflects what it is worth over its useful life.
Now, let's examine the options provided in the question:
- A. Depreciation encourages unethical financial reporting. This statement is generally incorrect. Depreciation is a systematic method of allocating the cost of a tangible asset over its useful life. It is not intended to encourage unethical behavior but to comply with the matching principle, where expenses are matched with revenues in the periods they are incurred.
- B. NCA should always be overstated for ethical business practices. This is incorrect and goes against ethical practices. Deliberately overstating assets is a form of accounting fraud and violates ethical and accounting standards.
- C. Accurate depreciation reflects the true value of NCA. This statement is true. Depreciation is meant to represent the decrease in value of an asset as it is used and approaches the end of its useful life, providing a more accurate portrayal of the asset's value on the balance sheet.
- D. Overstating depreciation is ethically acceptable. This is not true. Overstating depreciation would accelerate the expense recognition, which can manipulate earnings and is not in line with ethical accounting standards.
In summary, for ethical financial reporting, depreciation must be calculated accurately, reflecting the asset's consumption over time, and non-current assets should not be overstated or understated in the financial statements.