Merced Home Products-Accounting Ethics Case
Wayne A Shaker
OMGT 308-001.2014,SP, Financial and Managerial Accounting
Instructor: Paul H. Robinson, JD, CPA
Most profit making companies understand conducting business within an ethical reporting framework is the proper way to report quarterly results. Often accounting managers are given opportunities to exercise judgment in financial reporting, using their knowledge about the business to improve the effectiveness of financial statements. However, accounting professionals need to perform their job tasks in accordance with laws, regulations, and technical standards while supplying information that is accurate, clear, concise, and timely. At the same time, managers need to be free from pecuniary anxieties, and disclose all relevant information that could influence an intended recipients understanding of the analyses or reports. However, when managers have incentives to produce positive results, profit management can occur while misleading those who review the company’s financial statements.
In the case of Merced Home Products Inc., recently hired controller Stacy Cummins has stumbled upon an accounting procedure causing her great concern. Being a new controller, Stacy reviewed the financial statements of the Home Security division discovering profits improved each quarter until a year end climax with outstanding performance. According to the assistant controller, the standard costs had been modified by Vice President, Preston Lansing to reflect positive earnings as the fiscal year progressed. Upon further investigation, Ms. Cummins discovered the president of the Merced Home Products was aware of the reporting using questionable standards and had chosen not to bother Pres...
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...ose developed by the Institute of Management Accountants ("Ima," n.d.). The guidelines for ethical behavior cover professional competence, confidentiality, personal integrity, for individuals disclosing financial information. Of course, ethical behavior in reporting is critical to establish creditability to any company to infuluence growth and outside investment. In the end, ethical conduct of the individuals reporting results is essential for maintaining a solid reputation and support continued success.
References
Brewer, P. C., & Garrison, R. H. (2013). Introduction to managerial accounting (6th ed.). New York: McGraw-Hill/Irwin.
Federal Securities Laws. (2002). Retrieved April 29, 2014, from https://www.sec.gov/about/laws.shtml#sox2002
Ima. (n.d.). Retrieved April 29, 2014, from http://www.imanet.org/resources_and_publications/EthicsCenter.aspx
Ethics plays a vital role in developing accurate and high quality financial statements for management, financial institutions, and investors. As management utilizes financial statements to make decisions regarding the operations of the business, it is necessary to review accurate financial statements to make strategic decisions about the future of the organization. Investors and financial institutions require accurate financial statements to make informed decisions upon whether to invest funds into the organization or the wisdom of lending funds to said organization.
Although the plant accountant knew it was wrong to charge motors to operating expenditures, the accountant bowed to the pressure to do it anyway. The accountant violated the AICPA code of conduct, especially regarding serving the public interest. There were also issues with honesty and integrity.
This organization has been setting ethical standards and publishing the Code of Professional Conduct for the profession since the early 1900s. A Code of Professional Conduct is necessary for any profession to help maintain strict ethical standards. This organization is the basis of ethical reasoning in the accounting profession because of what the Code of Professional Conduct covers. The code is comprised of a preamble and six articles. The preamble and the six articles serve as a foundation to provide guidance and guidelines for accountants to overcome any emerging ethical issues with ease on a daily basis. The six articles’ purpose is to protect the public, investors, and creditors. The AICPA Code of Professional Conduct consists of: Responsibility, Public Interest, Integrity, Objectivity and Independence, Due Care, and Scope and Nature of
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
Bernardi, Richard A., and LaCross, Catherine C. "Corporate Transparency: Code of Ethics Disclosure." The CPA Journal (2005). Retrieved on 16 September 2006 .
Additionally, today’s society is filled with legal and ethical concerns that surround numerous individuals and their responsibility is to keep all information private and accurate. Furthermore, accounting and financial reporting is the most significant function of a business and entails a great sense of legal, ethical and technological concern.
In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.
...urvey of ethical behavior in the accounting profession. Journal of Accounting Research, 9 (2), pp. 287-306.
With every business activity come opportunities for fraudulent behavior which leads to a greater demand for auditors with unscathed ethics. Nowadays, auditors are faced with a multitude of ethical issues, and it is even more problematic when the auditors fail to adhere to the standards of professional conducts as prescribed by the American Institute of Certified Public Accountants (AICPA). The objective of this paper is to analyze the auditors’ compliance with the code of professional conduct in the way it relates to the effectiveness of their audits.
The Consumer and Industrial Products, Inc a company where their headquarters is based in the United States , also doing business internationally with facilities in Europe, Asia and South America. They are a manufacturing company what produced well known products to individuals and industries. This company is experiencing a great deal of trouble with their internal Payable Audit System (PAS) and how it would purchase goods; receive goods and pays for them. They are challenged with the redundancy and the lack of productivity to their system. They were finding ways to lower costs and eliminating steps in how these processes are getting accomplished. They decided that they needed to change their system and the way they did things at their business. There are some people, their roles and departments that will be closely involved with the process of this project. Some of these important roles will come from Ted Anderson director of disbursements, Peter Shaw the user project manager and Linda Watkins project director for the Payable Audit System (PAS). In addition, the Steering Group and the IS management department will have some important roles to the project too. Finally, there will be several major problems with the development of the project and how the one person would deal with these issues.
Proverbs 10:9 states: “People with integrity walk safely, but those who follow crooked paths will slip and fall” (New Living Translation).” This Scripture suggests that individuals who do not walk in integrity follow “crooked paths.” They walk in ways that are not morally sound, pure, and honest—but in ways that are corrupt. Clients want accountants with integrity. Thus, integrity is critical to the public trust. As a matter of fact, one of the general definitions of integrity provided by the AICPA Code is that it is a quality from which the public trust derives. Also, it is an element of character fundamental to professional recognition, and it requires members to be (among other things) honest and candid within the constraints of confidentiality (Duska, Duska & Ragatz, 2011). Integrity in the accounting profession involves adhering to the rules and principles of the profession. This includes remaining free of conflicts of interest and maintaining client relationships in which the accountant can remain objective in discharging his or her responsibilities. This requires independence in fact and in appearance as mandated under section 1.200.001.01, Independence Rule the AICPA Code. In other words, no one should be able to view the accountant as being biased with respect to a client’s financial reporting due to an improper client relationship. Lack of integrity in accounting practices has been, and continues to be, a key element in the downfall of many institutions which has hurt the public trust in the accounting
The 3 percent decline in sales causing a 21 percent decline in profits can be attributed to the identification of the accounting concept of operating leverage. Operating leverage is what business managers apply to boost small changes in revenue into sizable changes in profitability. Fixed cost is the force managers use to attain disproportionate changes between revenue and profitability. Therefore, when all costs are fixed every sales dollar contributes one dollar toward the potential profitability of a project. Once sales dollars cover fixed costs, each additional sales dollar represents pure profit. A small change in sales volume can significantly affect profitability (Edmonds, Tsay, & Olds, 2011). So, therefore, if sales volume increases,
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
It is highly essential for accountants and business professionals to maintain a standard of ethical conduct in the workplace as the nature of their work places them in position of trust. (Senarante, 2011). Accountants have the responsibility to ensure that their duties are performed in accordance with the five fundamental principles set out in the Code of Professional Ethics such as integrity, objectivity, professional competence and due care, confidentially and professional behaviour (Cunningham et al. 2014). Accountants are expected to be reliable and trustworthy. Thus they are required to act ethically in relation to their clients, employers and the general public in order to provide quality services in the best interest of the society (Eginiwin & Dike, 2014). The International Federation of Accountants (IFAC) have established a code of ethics for accountants, allowing each specific country to add their own national ethical standards to the code to reflect cultural differences. The code provides emphasis on the five fundamental principles as well as resolution of ethical conflicts. In Australia, professional accounting bodies such as CPA Australia, Institute of Chartered Accountants in Australia (ICCA) and the Institute of Public Accountants (IPA) adopt the Australian Professional and Ethical
The Tyco accounting scandal is an ideal illustration of how individuals who hold key positions in an organization are able to manipulate accounting practices and financial reports for personal gain. The few key individuals involved in the Tyco Scandal (CEO Kozlowski and CFO Swartz), used a number of clever and unique tactics in order to accomplish what they did; including spring loading, manipulating their ‘key-employee loan’ program, and multiple ‘hush money’ payouts.