Ethics Case Study

Question

Ethics Case:


You are an accountant in the budgetary, projections, and special projects department of Fernetti Conductor, Inc., a large manufacturing company. The president, Richard Brown, asks you on very short notice to prepare some sales and income projections covering the next 2 years of the company’s much heralded new product lines. He wants these projections for a series of speeches he is making while on a 2-week trip to eight East Cost brokerage firms. The president hopes to bolster Fernetti’s stock sales and price. 

You work 23 hours in 2 days to compile the projections, hand-deliver them to the president, and are swiftly but graciously thanked as he departs. A week later, you find time to go over some of your computations and discover a miscalculation that makes projections grossly overstated. You quickly inquire about the president’s itinerary and learn that he has made half of his speeches and has half yet to make. You are in a quandary as to what to do.
1.What are the consequences of telling the president of your gross miscalculations?
2.What are the consequences of not telling the president of your gross miscalculations?
3.What are the ethical considerations to you and the president in this situation?
4.Which Code of Conduct principle would you act on from the professional codes of conduct guiding ethical behavior in this field (Provide the name of the organization, and the code of conduct which pertains to why you act, and then provide the url for your source)?
5.Based on your chosen code of conduct principle(s), what would you do (step by step) in order to act in accordance with your chosen principle to address this situation?




Critical Elements:
•Write your original response in a 2-page paper using Standard American English, paying special attention to grammar, style, and mechanics. 
•Respond to the questions in a thorough manner in your essay.
•Ensure that your viewpoint and purpose are clearly stated. 
•Demonstrate logical and appropriate transitions from one idea to another. 
•Your paper should be highly organized, logical, focused, following citation APA format and citation style.
•Your 2-page essay should include an additional title page and a reference page.

Answer

Ethics Case Study

In the course of preparing financial statements and projections in accounting, errors are bound to arise. The positive side of such situations is that they act as sources of learning opportunities. Whenever miscalculations occur, an ethical professional accountant should take the necessary steps to amend the errors to avoid tainting not only his/her reputation, but also that of the organization.

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            In the outlined case study, there are several consequences that may arise as a result of informing the president about the gross miscalculations made. To begin with, it is a known fact that financial projections and sales budgets are aimed at estimating the profitability levels of an organization. Accurate financial projections of possible future sales imply that an organization is able to cut down on expenses proportionately and maintain its solvency level (Weygandt & Jerry, 2013). The sales budget is normally used as a measure of the total expenditure allocated to production of the new product lines (Weygandt & Jerry, 2013). Informing the president will accord him the chance to decide on whether to proceed with the current strategy or seek out an alternative planning strategy that will avoid tainting the image of the company by portraying it as incompetent. Informing the president of the error will enable him to make further considerations in terms of capital and labor costs implied by the projections. If funds are not available, better alternatives such as borrowing may be implemented. Funding issues aside, the efficiency, credibility and performance of the accountant will be called into question for failure of paying attention to detail. This could result in embarrassing situations or even termination of employment without recommendation.

            In contrast, failure to inform the president will also result to a series of negative implications sprouting up. To begin with, trust will be greatly compromised. The wrong information is already being disseminated to the intended recipients such that the image and reputation of the company may ultimately be tainted tremendously. It is quite obvious that the projections will not work out. As a result, the president and all the concerned parties will not only lose credibility but also incur financial losses. In addition to this, there is a high likelihood that the error in the projections will be discovered during annual reviews and termination of employment for the concerned parties will be a likely course of action. This is due to the fact that it will be discovered that the accountant was aware of the issue and failed to disclose it to his/her superiors. Furthermore, as a result of loss in trust, future projects and business deals will be compromised resulting to further financial losses (Klein, 2015).

            Accordingly, there are some ethical considerations to be made by the accountant. Firstly, he/she should double check the financial projections to ascertain their validity and accuracy before delivering them to the recipients. From an ethical point of view, the accountant should consider taking full responsibility for the mistake and take corresponding measures to correct it. The error must be disclosed regardless of the potential damage it could cause to the reputation of the company (Klein, 2015). Failure to do so will deny the president the chance to react and possibly find the most appropriate way to readdress the groups to whom he/she may already have presented the wrong information.

In relation to the code of ethics, integrity as a principle should be upheld as far as this predicament is concerned. According to the Accounting Professional and Ethics Standards Board (APESB, 2010), integrity basically outlines that one ought to be honest in all professional and business dealings and relationships alike. The work presented by an accountant should be devoid of any bias and self-interests. The link for APESB’s code of ethics is http://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf . according to this code, the accountant should adopt a three-prong strategy that would mitigate this issue. The first step would be to gather relevant facts by closely and carefully examining the data to alleviate any chances of relying on incorrect basic assumptions and making similar errors again. Secondly, identifying the parties and groups to be affected should be an imperative to remedying the mistake. Assessing individual groups and what each stands to lose should the error be concealed will ultimately influence the accountant to take appropriate and well-calculated remedies to counteract negative implications from arising. Finally, the accountant should consider and evaluate alternative courses of action and formidable approaches taking into perspective the implied consequences, organizational goals, policies and procedures as well as the laws and regulations that are applicable in this case.

References

APESB. (2016). APES 110 Code of ethics for professional accountants. December, 2010. Retrieved on August 15, 2016, from http://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf

Klein, G. (2015). Ethics in accounting: A decision-making approach, 1st Edition. London: Wiley.

Weygandt, P. D. & Jerry, J. (2012). Accounting principles. London: Wiley.

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