QUESTION AND ANSWERS

Question and Answers



Question and Answers

Ethics Problem#1

1. Snack food division might consider following points as a source of motivation in order to take the year-end actions:

The division bonus scheme of Gourmet Foods which is based on the year-end reported earnings could be reason of taking this particular decision. In other words, the management incentives could be the reason. Transferring cost to the next year or efforts to front-end revenue might increase the bonus in next year.

Job security and promotion opportunities. The managers who will result in the best reported earnings might be promoted on the basis of performance.

Division autonomy retention. Gourmet Foods' top management may adopt a approach called management by exception in order to increase the earning growth rate and supervision of the top management.

2.The “Standards of Ethical Conduct for practitioners of management accounting and financial management (IMA statement) require management accountants to:

Refraining from any activity which prejudices carrying out responsibilities and duties ethically.

Performing professional duties according to the prescribed rule, regulations, laws, and technical standards.

Communication of information must be ensured done objectively and fairly.

Hence, it can be noticed here that are various year-end action which contradict with the requirements and therefore need to tackle accordingly in order to satisfy Taylor

(b) On December 31st, year-end must be closed; because the inclusion of next year sale into current year would certainly result in the creation of false reports. (c) Modification of dates will certainly generate reports including false data.

(f) Advertisements must also be considered in the current year. Falsification of the accounting records is being facilitated by advertising agency.

The year-end actions might fall in to gray to acceptable, such as:

(a) If the maintenance work is not done in current year, then no need to consider its recording. Plant manager is responsible to enure the proper maintenance of equipment is done.

(d) In final weeks of the fiscal year heavy sale is recorded in the company's records. So, if certain bonus is approved by the division manager then it could do nothing but to record the bonus.

(e) Advertising cost will be reduced in December, if TV sports were to be reduced. No falsification of record here.

(g) Meaning of persuading carriers is important here, such as if carries are pressured to accept merchandise or if an under-the-table payment is involved it is certainly ethical. The transaction appears ethical however, when assignment is willingly accepted by foreseeing the potential increase in sales opportunities.

In long term, year-end action (a), (d), (e), (f) might be disadvantageous for Gourmet Foods. For instance, inadequate maintenance or no routine maintenance will certainly result in the failure of the equipment.

3.

Taylor must raise her concern with Ryan, if she believes that unethical behavior will be discovered due to the Ryan's suggestions. Gourmet's Foods corporate controller must be consulted by Taylor, if Ryan in not willing to change his request. She can also consult with the IMA ethics controller in order to start the confidential ...