Budgeting: Ethical Issues

Essay Instructions:

Using underlying concepts learned in the previous 4 modules, write a 5 – 8 page report providing the best analysis for the scenario below:

Joy Reed, a district manager, performance evaluation and reward is made on the basis of adhering to the confines of a flexible budget. Joy, the assistants, and operation managers are all eligible to receive a bonus if actual district net operating income is between budgeted net operating income and 130 per cent of the net operating income. The bonuses are based on a fixed percentage of actual net operating income. Net operating income greater than 130 per cent of budgeted net operating income earn a bonus at the 130 per cent level (in short, there is an upper limit on bonus payments). If actual net operating income is less than budgeted net operating income, no bonuses are awarded. Consider actions taken by Joy:

1. Joy overestimates expenses and underestimates revenues. This increases the chances of the district in reaching the budgeted net operating income. Joy believes the action is okay, because it increases the probability of receiving bonuses and helps keep the managers morale high.

2. Near fiscal year end, Joy sees the district will not achieve budgeted net operating income. So, she tells the sales group to defer the closing several sales agreements to the next fiscal year. She also wrote off inventory which was worthless. Deferring revenues to following year and writing off inventory in a no-bonus year increases the probability of a bonus for next year.

3. Make the assumption that towards the end of the year, Joy sees actual net operating income will exceed the 130 per cent limit and she takes actions similar to those described in Item b.

Although there are ethical issues to address, there are additional concerns impacted by ethical lapses in decision making, such as the budgeting and impact on the various parts of the organization, or the whole organization which should be discussed.

REQUIRED QUESTIONS:

• Discuss Joy’s ethical behavior; are her actions right or wrong?

• What role does the company play in enabling the actions taken by Joy?

• If you are the marketing manager for the district, and receive instructions to defer closing of sales until the next fiscal year, what would you do?

• If you are the operations manager, and know your budget has been padded by the district manager and the padding is common knowledge among other operations managers, who support it because it increases the probability of coming under budget and receiving a bonus, what would you do?

• If you are the district controller, and receive instructions from the district manager to accelerate the recognition of expenses which legitimately belong to a future period, what would you do?

Please review the SLOs mentioned below and synthesize

them into your research paper.

SLO1: Identify capital budgeting techniques examining their effects on corporate strategy of investment selection.

SLO2: Examine how investment value is measured with consideration of capital rationing for capital budgeting.

SLO3: Analyze processes in foreign investments.

SLO4: Evaluate basic risk adjustment techniques in capital budgeting

WRITING GUIDELINES:

• The length of this paper should be between 5-8 pages (not including the title page, table of contents or reference page)

• APA formatting, double spaced, with 1-inch margins and 12 point Times New Roman font.

• Your paper must have an INTRODUCTION and CONCLUSION paragraphs.

• Please include Title Page, Table of Contents Page, Reference Page, and Appendices page(if needed).

• Please submit in a word document and NOT pdf version.

• You should use headings and subheadings to organize your paper.

• Use at least 5 academic, scholarly or professional practitioner sources, and minimum 5 in-text CITATIONS are required.

• You must cite and reference all texts used, including page numbers to avoid plagiarism.

• Please provide verifiable links/web address for each academic reference used.

• Paper should be proofread for spelling and grammar mistakes

• Please review the SLOs mentioned above and synthesize them into your research paper.

Essay Sample Content Preview:

Ethical Issues Student’s Name Institutional Affiliation Date TABLE OF CONTENTS 1. Introduction.....................................................................................................................1 2. Ethical concerns...............................................................................................................2 3. Role of the company.........................................................................................................3 4. Role of operational manager...............................................................................................4 5. Role of district controller......................................................................................................5 6. Capital budgeting technique.................................................................................................6 7. Types of capital rationing.....................................................................................................7 8. Process of foreign investment..............................................................................................8 9. Risk adjustment techniques...................................................................................................9 10. Conclusion.........................................................................................................................10 1. Introduction Ethics is one of the major strategies that can be used in the realization of the organization objectives. However if the ethics is not observed then the organization will not achieve its goals. This paper will discuss the ethical concerns and their importance, the capital budgeting techniques, capital rationing and the risk adjustment techniques. 2. Ethical concerns Honesty and integrity The ethical behavior of joy is based on the honesty and integrity in the accounting profession. The accountants should present the facts concerning the books of account with objectivity and distance themselves from the misleading the public on the performance of the company. The accountants should prepare the books of account with honesty and objectivity so as not to lose the confidence and trust of the general public. In this case Joy did not observe the honesty and integrity by overestimating the expenses and underestimating the revenue so as to receive the bonuses and keeping the managers morale high. This is absolutely wrong because it goes against the professional ethics of the profession (Zadek et al., 2013) Professional competence According to (Taylor& Curtis2010), accountant should act in a manner that is likely to show that she is acting in line with the ethical requirements. The accountant should be competent in their work. The accountants should be up to date in preparation of the books of accounts; they should apply sound judgment in their engagements. It was wrong for Joy to omit some items from the income statement like inventory so as reach at the bonuses. The act of deferring the revenue to the other year also was not ethical for it goes against the ethical requirements of a professional accountant. Also the aspect of differing the closing of the sales agreement was another aspect that showed that there was lack of competence on the side of Joy. Professional behavior The professional behavior should be observed by the accountants ion every aspect while handling the books of accounts. The accountants should act in a professional manner in line with the generally accepted standards of behavior of a professional person. Joy did not act in a professional way while making the assumptions so that she can attract bonuses and increasing the morale of the managers. 3. Role of the company The company has played a great role in enabling the actions that have been taken by Joy in the omissions, assumptions and the deferring the items in the income statements. The company has ensured this because it has set the goals and targets so high that the employees and the company cannot be able to attain with easy. This means that the goals and the targets are unrealistic and that’s why the accountant, Joy, is doing all the unethical things to please the managers and consequently get the bonuses. As the marketing manager of to the district, the sales should be recorded in the time that they are made and not otherwise. The advice should be given to the accountant of the importance of recognizing the sales and recording it the required time frame. The time period assumption should be taken into consideration and therefore that will be the advice to the company to adhere to the principles of accounting. 4. Role of operational manager As the operation manager learning of the padding of the budget by the district manager should be discouraged all means. Even if the padding has been understood before by other operation manager to be the common knowledge and will attract the bonuses, it will be discussed and the advice be given as well as the recommendations on the different ways of getting rewards rather than making budgets that are not actual but rather based on falsehood. The district manager toget...

Updated on January 26, 2024

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