Question

Read the above ‘News Article’ and identify the accounting principles that Facebook violated, Explain your answer

"Why are shareholders suing Facebook? Totally separate from the Nasdaq issues, there's a regulatory investigation beginning into how Facebook and its bankers handled sensitive financial information. A group of Facebook shareholders filed a lawsuit in a New York district court on Wednesday, alleging that important information about Facebook's financial outlook was "selectively disclosed" to big banks ahead of the Initial Public Offering. It's odd that four different banks would cut their estimates to similar sums in a short timeframe, and it raises the question of whether small shareholders were left out of back-door conversations. More specifically, the lawsuit alleges that Facebook told analysts at its underwriters "to materially lower their revenue forecasts for 2012."

Answer 1

Principle of confidentiality:

To not disclose the information that is supposed to be confidential to anyone for consideration or without consideration.

Principle of regularity:

The accounting revenue shold be computed keeping in mind the IFRS principles, in ythe given case they have asked to lower the revenue forecasts for 2012.

Principle of consistency:

Same standard should be applied in computing the revenue from one period to another. In the given case they have asked to lower the revenue forecast, that should be done in line with the accounting principles.

Principle of Sincerity:

The accountant should disclose the impartial view of the financial statement, in the given case they have been asked to show the lower revenue and there is biasness.