CHAPTER 1

THE ACCOUNTANTS ROLE IN THE ORGANIZATION

See the front matter of this Solutions Manual for suggestions regarding your choices of
assignment material for each chapter.
1-1 Management accounting measures, analyzes and reports financial and nonfinancial
information that helps managers make decisions to fulfill the goals of an organization. It focuses
on internal reporting and is not restricted by generally accepted accounting principles (GAAP).
Financial accounting focuses on reporting to external parties such as inestors,
goernment agencies, and banks. It measures and records business transactions and proides
financial statements that are based on generally accepted accounting principles (GAAP).
!ther differences include (") management accounting emphasizes the future (not the
past), and (#) management accounting influences the behaior of managers and other employees
(rather than primarily reporting economic eents).
1-2 $inancial accounting is constrained by generally accepted accounting principles.
%anagement accounting is not restricted to these principles. &he result is that
management accounting allo's managers to charge interest on o'ners( capital to help
)udge a diision(s performance, een though such a charge is not allo'ed under GAAP,
management accounting can include assets or liabilities (such as *brand names+
deeloped internally) not recognized under GAAP, and
management accounting can use asset or liability measurement rules (such as present
alues or resale prices) not permitted under GAAP.
1-3 %anagement accountants can help to formulate strategy by proiding information about
the sources of competitie adantage,for example, the cost, productiity, or efficiency
adantage of their company relatie to competitors or the premium prices a company can charge
relatie to the costs of adding features that make its products or serices distinctie.
1-4 &he business functions in the alue chain are
Research and deve!"#en$,generating and experimenting 'ith ideas related to ne'
products, serices, or processes.
%es&'n !( "r!d)c$s* serv&ces* and "r!cesses,the detailed planning and engineering
of products, serices, or processes.
Pr!d)c$&!n,ac-uiring, coordinating, and assembling resources to produce a product
or delier a serice.
+ar,e$&n',promoting and selling products or serices to customers or prospectie
customers.
%&s$r&-)$&!n,deliering products or serices to customers.
C)s$!#er serv&ce,proiding after.sale support to customers.
"."
1-. Supply chain describes the flo' of goods, serices, and information from the initial
sources of materials and serices to the deliery of products to consumers, regardless of 'hether
those actiities occur in the same organization or in other organizations.
/ost management is most effectie 'hen it integrates and coordinates actiities across all
companies in the supply chain as 'ell as across each business function in an indiidual
company(s alue chain. Attempts are made to restructure all cost areas to be more cost.effectie.
1-/ *%anagement accounting deals only 'ith costs.+ &his statement is misleading at best,
and 'rong at 'orst. %anagement accounting measures, analyzes, and reports financial and non-
financial information that helps managers define the organization(s goals, and make decisions to
fulfill them. %anagement accounting also analyzes reenues from products and customers in
order to assess product and customer profitability. &herefore, 'hile management accounting does
use cost information, it is only a part of the organization(s information recorded and analyzed by
management accountants.
1-0 %anagement accountants can help improe -uality and achiee timely product delieries
by recording and reporting an organization(s current -uality and timeliness leels and by
analyzing and ealuating the costs and benefits,both financial and non.financial,of ne'
-uality initiaties such as &0%, relieing bottleneck constraints or proiding faster customer
serice.
1-1 &he fie.step decision.making process is (") identify the problem and uncertainties (#)
obtain information (1) make predictions about the future (2) make decisions by choosing among
alternaties and (3) implement the decision, ealuate performance and learn.
1-2 Planning decisions focus on (a) selecting organization goals, predicting results under
arious alternatie 'ays of achieing those goals, deciding ho' to attain the desired goals, and
(b) communicating the goals and ho' to attain them to the entire organization.
Control decisions focus on (a) taking actions that implement the planning decisions, and
(b) deciding ho' to ealuate performance and proiding feedback and learning to help future
decision making.
1-13 &he three guidelines for management accountants are
". 4mploy a cost.benefit approach.
#. 5ecognize behaioral and technical considerations.
1. Apply the notion of *different costs for different purposes+.
1-11 Agree. A successful management accountant re-uires general business skills (such as
understanding the strategy of an organization) and people skills (such as motiating other team
members) as 'ell as technical skills (such as computer kno'ledge, calculating costs of products,
and supporting planning and control decisions).
".#
1-12 &he ne' controller could reply in one or more of the follo'ing 'ays6
(a) 7emonstrate to the plant manager ho' he or she could make better decisions if the
plant controller 'as ie'ed as a resource rather than a dead'eight. In a related 'ay,
the plant controller could sho' ho' the plant manager(s time and resources could be
saed by ie'ing the ne' plant controller as a team member.
(b) 7emonstrate to the plant manager a good kno'ledge of the technical aspects of the
plant. &his approach may inole doing background reading. It certainly 'ill inole
spending much time on the plant floor speaking to plant personnel.
(c) 8ho' the plant manager examples of the ne' plant controller(s past successes in
'orking 'ith line managers in other plants. 4xamples could include
assistance in preparing the budget,
assistance in analyzing problem situations and ealuating financial and
nonfinancial aspects of different alternaties, and
assistance in submitting capital budget re-uests.
(d) 8eek assistance from the corporate controller to highlight to the plant manager the
importance of many tasks undertaken by the ne' plant controller. &his approach is a
last resort but may be necessary in some cases.
1-13 I%A stands for the Institute of %anagement Accountants. It is the largest association of
management accountants in the 9nited 8tates. &he /%A (/ertified %anagement Accountant) is
the professional designation for management accountants and financial executies. It
demonstrates that the holder has met the admission criteria and demonstrated the competency of
management accounting kno'ledge re-uired by the I%A.
1-14 &he Institute of %anagement Accountants (I%A) sets standards of ethical conduct for
management accountants in the follo'ing areas6
/ompetence
/onfidentiality
Integrity
/redibility
1-1. 8teps to take 'hen established 'ritten policies proide insufficient guidance are
(a) 7iscuss the problem 'ith the immediate superior (except 'hen it appears that the
superior is inoled).
(b) /larify releant ethical issues by confidential discussion 'ith an I%A 4thics
/ounselor or other impartial adisor.
(c) /onsult your o'n attorney as to legal obligations and rights concerning the ethical
conflicts.
".1
1-1/ ("3 min.) 4a)e cha&n and cass&(&ca$&!n !( c!s$s* c!#")$er c!#"an56
C!s$ I$e# 4a)e Cha&n 7)s&ness 8)nc$&!n
a.
b.
c.
d.
e.
f.
g.
h.
Production
7istribution
7esign of products, serices or processes
5esearch and 7eelopment
/ustomer 8erice or %arketing
7esign of products, serices or processes
(or 5esearch and 7eelopment)
%arketing
Production
1-10 ("3 min.) 4a)e cha&n and cass&(&ca$&!n !( c!s$s* "har#ace)$&ca c!#"an56
C!s$ I$e# 4a)e Cha&n 7)s&ness 8)nc$&!n
a.
b.
c.
d.
e.
f.
g.
h.
7esign of products, serices or processes
%arketing
/ustomer 8erice
5esearch and 7eelopment
%arketing
Production
%arketing
7istribution
1.18 ("3 min.) 4a)e cha&n and cass&(&ca$&!n !( c!s$s* (as$ (!!d res$a)ran$6
C!s$ I$e# 4a)e Cha&n 7)s&ness 8)nc$&!n
a.
b.
c.
d.
e.
f.
g.
h.
Production
7istribution
%arketing
%arketing
%arketing
Production
7esign of products, serices or processes
/ustomer serice
1-12 ("3 min.) 4a)e cha&n* s)""5 cha&n* and ,e5 s)ccess (ac$!rs6
Chan'e &n
+ana'e#en$ Acc!)n$&n' 9e5 The#e
a.
b.
c.
d.
e.
:alue.chain analysis
;ey success factors (cost and -uality)
;ey success factors (cost)
8upply.chain analysis
;ey success factors (time)
".2
1-23 ("<."3 min.) Pann&n' and c!n$r! dec&s&!ns6
Ac$&!n %ec&s&!n
a.
b.
c.
d.
e.
Planning
/ontrol
/ontrol
Planning
Planning
1-21 ("3 min.) 8&ve-s$e" dec&s&!n-#a,&n' "r!cess* #an)(ac$)r&n'6
Ac$&!n S$e" &n %ec&s&!n-+a,&n' Pr!cess
a.
b.
c.
d.
e.
f.
g.

!btain information
%ake predictions about the future
Identify the problem and uncertainties
Implement the decision, ealuate performance, and learn
%ake predictions about the future
%ake decisions by choosing among alternaties
!btain information
1-22 ("3 min.) 8&ve-s$e" dec&s&!n-#a,&n' "r!cess* serv&ce (&r#6
Ac$&!n S$e" &n %ec&s&!n-+a,&n' Pr!cess
a.
b.
c.
d.
e.
f.
g.
.
!btain information
Identify the problem and uncertainties
%ake predictions about the future
Implement the decision, ealuate performance, and learn
%ake predictions about the future
!btain information
%ake decisions by choosing among alternaties
".3
1-23 ("<="3 min.) Pr!(ess&!na e$h&cs and re"!r$&n' d&v&s&!n "er(!r#ance6
". %iller(s ethical responsibilities are 'ell summarized in the I%A(s *8tandards of 4thical
/onduct for %anagement Accountants+ (4xhibit ".> of text). Areas of ethical responsibility
include the follo'ing6
competence
confidentiality
integrity
credibility
&he ethical standards related to %iller(s current dilemma are integrity, competence and
credibility. 9sing the integrity standard, %iller should carry out duties ethically and
communicate unfaorable as 'ell as faorable information and professional )udgments or
opinions. /ompetence demands that %iller perform her professional duties in accordance 'ith
releant la's, regulations, and technical standards. /redibility re-uires that %iller report
information fairly and ob)ectiely. %iller should refuse to book the ?#<<,<<< of sales until the
goods are shipped. @oth financial accounting and management accounting principles maintain
that sales are not complete until the title is transferred to the buyer.
#. %iller should refuse to follo' %aloneyAs orders. If %aloney persists, the incident should
be reported to the corporate controller. 8upport for line management should be 'holehearted, but
it should not re-uire unethical conduct.
1-24 ("3 min.) Pann&n' and c!n$r! dec&s&!ns* In$erne$ c!#"an56
". Pann&n' dec&s&!ns
a. 7ecision to raise monthly subscription fee
c. 7ecision to upgrade content of online serices (later decision to inform subscribers
and upgrade online serices is an implementation part of control)
e. 7ecision to decrease monthly subscription fee
C!n$r! dec&s&!ns
b. 7ecision to inform existing subscribers about the rate of increase,an implementation
part of control decisions
d. 7ismissal of :P of %arketing,performance ealuation and feedback aspect of
control decisions
#. !ther planning decisions that may be made at BebCe's.com6 decision to raise or lo'er
adertising feesD decision to charge a fee from on.line retailers 'hen customers click.through
from BebCe's.com to the retailers( 'ebsites.
!ther control decisions that may be made at BebCe's.com6 ealuating ho' customers
like the ne' format for the 'eather information, 'orking 'ith an outside endor to redesign the
'ebsite, and ealuating 'hether the 'aiting time for customers to access the 'ebsite has been
reduced.
".E
1-2. (#< min.) S$ra$e'&c dec&s&!ns and #ana'e#en$ acc!)n$&n'6
". &he strategies the companies are follo'ing in each case are6
a.
b.
c.
d.
Fo' price strategy
7ifferentiated product strategy
Fo' price strategy
7ifferentiated product strategy
#. 4xamples of information the management accountant can proide for each strategic decision
follo'.
a.


b.


c.

d.
/ost to manufacture and sell the cell phone
Productiity, efficiency and cost adantages relatie to competition
Prices of competitie cell phones
8ensitiity of target customers to price and -uality
&he production capacity of 5oger Phones and its competitors
/ost to deelop, produce and sell ne' soft'are
Premium price that customers 'ould be 'illing to pay due to product uni-ueness
Price of basic soft'are
Price of closest competitie soft'are
/ash needed to deelop, produce and sell ne' soft'are
/ost of producing the *store.brand+ lip gloss
Productiity, efficiency and cost adantages relatie to competition
Prices of competitie products
8ensitiity of target customers to price and -uality
Go' the market for lip gloss is gro'ing
/ost to produce and sell ne' line of gourmet bologna
Premium price that customers 'ould be 'illing to pay due to product uni-ueness
Price of basic meat product
Price of closest competitie product
1-2/ ("3 min.) +ana'e#en$ acc!)n$&n' ')&de&nes6
". /ost.benefit approach
#. @ehaioral and technical considerations
1. 7ifferent costs for different purposes
2. /ost.benefit approach
3. @ehaioral and technical considerations
E. /ost.benefit approach
>. @ehaioral and technical considerations
H. 7ifferent costs for different purposes
I. @ehaioral and technical considerations
".>
1-20 ("3 min.) R!e !( c!n$r!er* r!e !( ch&e( (&nanc&a !((&cer6
".
Ac$&v&$5 C!n$r!er C8O
%anaging accounts payable J
/ommunicating 'ith inestors J
8trategic reie' of different lines of businesses J
@udgeting funds for a plant upgrade J
%anaging the company(s short.term inestments J
Cegotiating fees 'ith auditors J
Assessing profitability of arious products J
4aluating the costs and benefits of a ne' product design J
#. As /$!, Perez 'ill be interacting much more 'ith the senior management of the
company, the board of directors, and the external financial community. Any experience he can
get 'ith these aspects 'ill help him in his ne' role as /$!. George Perez can be better
positioned for his ne' role as /$! by participating in strategy discussions 'ith senior
management, by preparing the external inestor communications and press releases under the
guidance of the current /$!, by attending courses that focus on the interaction and negotiations
bet'een the arious business functions and, either formally or on the )ob, getting training in
issues related to inestments and corporate finance.
1-21 (1< min.) S!($:are "r!c)re#en$ dec&s&!ns* e$h&cs6
". %ichael faces an ethical problem. &he trip appears to be a gift 'hich could influence his
purchase decision. &he ethical standard of integrity re-uires %ichaels to refuse the gift.
/ompanies 'ith *codes of conduct+ fre-uently hae a *supplier clause+ that prohibits their
employees from accepting *material+ (in some cases, any) gifts from suppliers. &he motiations
include
(a) IntegrityKconflict of interest. 8uppose %ichaels recommends that a Gorizon ".#.1
product should subse-uently be purchased by $iesta. &his recommendation could be
because he felt obligated to them as his trip to the /ancLn conference 'as fully paid
by Gorizon.
(b) &he appearance of a conflict of interest. 4en if the Gorizon ".#.1 product is the
superior one at that time, other suppliers likely 'ill hae a different opinion. &hey
may beliee that the 'ay to sell products to $iesta is ia *fully.paid )unkets to
resorts.+ &hose not 'anting to do business this 'ay may do'nplay future business
actiities 'ith $iesta een though $iesta could gain much from such actiities.
8ome executies ie' the meeting as *suspect+ from the start gien the /aribbean location and
its *rest and recreation+ tone.
#. $iesta should not allo' executies to attend user meetings 'hile negotiating 'ith other
endors about a purchase decision. &he payment of expenses for the trip constitutes a gift that
could appear to influence their purchase decision.
".H
Pr!s !( a$$end&n' )ser #ee$&n'
(a) !pportunity to learn more about Gorizon(s soft'are products.
(b) !pportunity to interact 'ith other possible purchasers and get their opinions.
(c) !pportunity to influence the future product deelopment plans of Gorizon in a 'ay
that 'ill benefit $iesta. An example is Gorizon subse-uently deeloping soft'are
modules tailored to food product companies.
(d) 8aes $iesta money. :isiting suppliers and their customers typically cost money,
'hereas Gorizon is paying for the /ancLn conference.
C!ns !( A$$end&n'
(a) &he ethical issues raised in re-uirement ".
(b) Cegatie morale effects on other $iesta employees 'ho do not get to attend the
/ancLn conference. &hese employees may reduce their trust and respect for
%ichaels(s )udgment, arguing he has been on a *supplier.paid acation.+
C!nd&$&!ns !n A$$end&n' $ha$ 8&es$a +&'h$ I#"!se
(a) 8izable part of that time in /ancLn has to be deoted to business rather than
recreation.
(b) 7ecision on 'hich $iesta executie attends is not made by the person 'ho attends
(this reduces the appearance of a conflict of interest).
(c) Person attending (%ichaels) does not hae final say on purchase decision (this
reduces the appearance of a conflict of interest).
(d) $iesta executies go only 'hen a ne' ma)or purchase is being contemplated (to aoid
the conference becoming a regular *acation+).
A /onference @oard publication on Corporate Ethics asked executies about a comparable
situation. $ollo'ing are the results6
>EM said $iesta and %ichaels face an ethical consideration in deciding 'hether to
attend.
>"M said %ichaels should not attend, as the payment of expenses is a *gift+ 'ithin the
meaning of a credible corporate ethics policy.
1. &he company does not need its o'n code of ethics. &hey can use the code of ethics
deeloped by the I%A.
Pr!s !( hav&n' a :r&$$en c!de
&he /onference @oard outlines the follo'ing reasons 'hy companies adopt codes of
ethics6
(a) 8ignals commitment of senior management to ethics.
(b) Promotes public trust in the credibility of the company and its employees.
(c) 8ignals the managerial professionalism of its employees.
(d) Proides guidance to employees as to ho' difficult problems are to be handled. If
adhered to, employees 'ill aoid many actions that are unethical or appear to be
unethical.
".I
(e) 7rafting of the policy (and its redrafting in the light of ambiguities) can assist
management in anticipating and preparing for ethical issues not yet encountered.
C!ns !( hav&n' a :r&$$en c!de
(a) /an gie appearance that all issues hae been coered. Issues not coered may appear
to be *acceptable+ een 'hen they are not
(b)/an constrain the entrepreneurial actiities of employees. $orces people to al'ays
*behae by the book.+
(c) /ost of deeloping code can be *high+ if it consumes a lot of employee time.
1-22 (1<=2< min.) Pr!(ess&!na e$h&cs and end-!(-5ear ac$&!ns6
". &he possible motiations for the snack foods diision 'anting to take end.of.year actions
include6
(a) %anagement incenties. Gourmet $oods may hae a diision bonus scheme based on
one.year reported diision earnings. 4fforts to front.end reenue into the current year
or transfer costs into the next year can increase this bonus.
(b) Promotion opportunities and )ob security. &op management of Gourmet $oods likely
'ill ie' those diision managers that delier high reported earnings gro'th rates as
being the best prospects for promotion. 7iision managers 'ho delier *un'elcome
surprises+ may be ie'ed as less capable.
(c) 5etain diision autonomy. If top management of Gourmet $oods adopts a
*management by exception+ approach, diisions that report sharp reductions in their
earnings gro'th rates may attract a sizable increase in top management superision.
#. &he *8tandards of 4thical /onduct . . . + re-uire management accountants to
Perform professional duties in accordance 'ith releant la's, regulations, and
technical standards.
5efrain from engaging in any conduct that 'ould pre)udice carrying out duties
ethically.
/ommunicate information fairly and ob)ectiely.
8eeral of the *end.of.year actions+ clearly are in conflict 'ith these re-uirements and should be
ie'ed as unacceptable by &aylor.
(b) &he fiscal year.end should be closed on midnight of 7ecember 1". *4xtending+ the
close falsely reports next year(s sales as this year(s sales.
(c) Altering shipping dates is falsification of the accounting reports.
(f) Adertisements run in 7ecember should be charged to the current year. &he
adertising agency is facilitating falsification of the accounting records.
&he other *end.of.year actions+ occur in many organizations and fall into the *gray+ to
*acceptable+ area. Go'eer, much depends on the circumstances surrounding each one, such as
the follo'ing6
(a) If the independent contractor does not do maintenance 'ork in 7ecember, there is no
transaction regarding maintenance to record. &he responsibility for ensuring that
packaging e-uipment is 'ell maintained is that of the plant manager. &he diision
"."<
controller probably can do little more than obsere the absence of a 7ecember
maintenance charge.
(d) In many organizations, sales are heaily concentrated in the final 'eeks of the fiscal
year.end. If the double bonus is approed by the diision marketing manager, the
diision controller can do little more than obsere the extra bonus paid in 7ecember.
(e) If &: spots are reduced in 7ecember, the adertising cost in 7ecember 'ill be
reduced. &here is no record falsification here.
(g) %uch depends on the means of *persuading+ carriers to accept the merchandise. $or
example, if an under.the.table payment is inoled, or if carriers are pressured to
accept merchandise, it is clearly unethical. If, ho'eer, the carrier receies no extra
consideration and 'illingly agrees to accept the assignment because it sees potential
sales opportunities in 7ecember, the transaction appears ethical.
4ach of the (a), (d), (e), and (g) *end.of.year actions+ may 'ell disadantage Gourmet $oods in
the long run. $or example, lack of routine maintenance may lead to subse-uent e-uipment
failure. &he diisional controller is 'ell adised to raise such issues in meetings 'ith the diision
president. Go'eer, if Gourmet $oods has a rigid set of lineKstaff distinctions, the diision
president is the one 'ho bears primary responsibility for )ustifying diision actions to senior
corporate officers.
1. If &aylor beliees that 5yan 'ants her to engage in unethical behaior, she should first
directly raise her concerns 'ith 5yan. If 5yan is un'illing to change his re-uest, &aylor should
discuss her concerns 'ith the /orporate /ontroller of Gourmet $oods. 8he could also initiate a
confidential discussion 'ith an I%A 4thics /ounselor, other impartial adiser, or her o'n
attorney. &aylor also may 'ell ask for a transfer from the snack foods diision if she perceies
5yan is un'illing to listen to pressure brought by the /orporate /ontroller, /$!, or een
President of Gourmet $oods. In the extreme, she may 'ant to resign if the corporate culture of
Gourmet $oods is to re'ard diision managers 'ho take *end.of.year actions+ that &aylor ie's
as unethical and possibly illegal. It 'as precisely actions along the lines of (b), (c), and (f) that
caused @etty :inson, an accountant at Borld/om to be indicted for falsifying Borld/om(s books
and misleading inestors.
1-33 (1< min.) Pr!(ess&!na e$h&cs and earn&n's #ana'e#en$6
". &he possible motiations for Garest 7ay /orporation(s /4! to *manage+ earnings include
(a) %anage the stock price. Garest 7ay(s /4! 'ants to meet the forecasted earnings
number of ?".12 per share because the /4! beliees that the stock price 'ill drop if
actual earnings fall short of the forecast .
(b) Nob security. &he /4! may be concerned that the @oard of 7irectors may hae a poor
ie' of him if he deliers *un'elcome surprises+. 7epending on ho' much the stock
falls, they may een consider dismissing him.
(c) %anagement incenties. &he bonuses of top management and the /4! may be based on
earnings. If earnings decrease, smaller or no bonuses may be paid. If top management
and the /4! hae stock options, the alue of these options 'ill be adersely affected if
the stock price falls.
#. &he *8tandards for 4thical /onductO+ re-uires management accountants to
".""
Perform professional duties in accordance 'ith releant la's, regulations, and technical
standards.
5efrain from engaging in any conduct that 'ould pre)udice carrying out duties ethically.
/ommunicate information fairly and ob)ectiely.
8eeral of the *end of fiscal year actions+ clearly are in conflict 'ith these re-uirements and
should be ie'ed as unacceptable.
(a) 8ubscriptions cancelled in 7ecember should be recorded in 7ecember itself and not delayed
until Nanuary.
(c) 8ubscription reenue receied in 7ecember in adance for magazines that 'ill be sent out in
Nanuary is a liability. 8ho'ing it as reenue falsely reports next year(s reenue as this
year(s reenue.
(d) !ffice supplies purchased in 7ecember should be recorded as an expense of the current year
and not as an expense of the next year.
(e) @ooking adertising reenues that relate to Nanuary in 7ecember falsely reports next year(s
reenue as this year(s reenue.
&he other *end of fiscal year actions+ occur in many organizations and fall into the *gray+ to
*acceptable+ area. %uch depends on the circumstances surrounding each one, ho'eer, such as
the follo'ing6
(b) If the soft'are on office computers is not updated until Nanuary, there is no transaction or
expense to record in 7ecember. &he responsibility for ensuring that the soft'are is updated
is that of the chief information technology officer. &he controller can do little more than
obsere the absence of a 7ecember soft'are update and -uestion 'hether this 'ill hae an
aderse long.term impact on Garest 7ay.
(f) If building repairs are not done in 7ecember, there is no transaction to record in 7ecember.
&here is no record falsification here. &he decision regarding 'hen to do building repairs is
made by the operations manager.
(g) %any companies s'itch their depreciation policy from one method to another. Garest 7ay
could argue that straight.line depreciation better represents the decrease in the economic
alue of the asset compared to the declining balance method. 8traight.line depreciation
may also be more in line 'ith 'hat its competitors do. If, ho'eer, Garest 7ay changes to
straight.line depreciation 'ith the sole purpose of reducing expenses to meet its earnings
goal, such behaior 'ould be unacceptable. &he 8tandards of 4thical @ehaior re-uire
management accountants to communicate information fairly and ob)ectiely and to carry
out duties ethically.
1. Garest 7ay(s controller should directly raise hisKher concerns 'ith the /4!. If the /4!
refuses to change his re-uest, the /ontroller should raise these issues 'ith the Audit /ommittee
and the @oard of 7irectors. &he /ontroller could also initiate a confidential discussion 'ith an
I%A 4thics /ounselor, other impartial adiser, or hisKher o'n attorney. In the extreme, the
/ontroller may 'ant to resign if the corporate culture of Garest 7ay is to re'ard executies
'ho take *end of fiscal year actions+ that the /ontroller ie's as unethical and possibly illegal.
It 'as precisely actions along the lines of (a), (c), (d), and (e) that caused @etty :inson, an
accountant at Borld/om, to be indicted for falsifying Borld/om(s books and misleading
inestors.
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1-31 (2< min.) G!-a c!#"an5* e$h&ca chaen'es :&$h -r&-er56
". It is clear that bribes are illegal according to 9.8. la's. It is not clear from the case
'hether bribes are illegal in :artan. Go'eer, kno'ledgeable people in global business 'ould
attest to the fact that it is irtually impossible to find any country in the 'orld that specifically
sanctions bribery. &he ma)or point, ho'eer, that deseres discussion is6 8hould Pen&el engage
in any unethical actiities een if they are not illegalQ
It is difficult to make a generalization about all shareholders of the company. It is,
ho'eer, safe to assume that not all shareholders 'ould 'ant to keep their inestment in a
company that is engaged in unethical andKor illegal actiities. &here is historical eidence to
substantiate this point6 Bhen apartheid la's 'ere in effect in 8outh Africa, many inestors
diested shares of companies doing business in 8outh Africa.
#. Apparently Gank thinks that local culture and common practice are one and the same.
&his, in fact, is not the case. &here are many common practices in deeloping countries, 'hich
are against the natie culture.
8pecifically, bribery often leads to decisions that are not made on the basis of the merits
of the alternatie selected. &his results in misallocation of meager resources of the deeloping
country. %isallocation of resources has aderse effects on the economy of a country and the
liing standard of its population. &he negatie impact is intensified in deeloping countries
because they can least afford the misallocation of resources.
As it applies to local common practice, multinational companies make some small
allo'ances but dra' a hard line against paying the ?" million *commission.+
1. Pen&el might hae an articulated corporate policy against such payments to get the
message across that regardless of la's, the top management 'ould not tolerate any bribery
payments made by its employees. A strong and consistent message from the top often has a
noticeable effect on the corporate culture and employee behaior.
9.8. la's specifically prohibit bribery payments. 8uch payments can result in heay
penalties to the corporation making the payments.
2. If this contract is of great importance to Pen&el(s global strategy, it is likely that this kind
of issue 'ill come up again as Pen&el expands into ery dierse cultures and the company
should tackle it head on and make a policy decision against offering bribes. 8tee /heng should
discuss the situation 'ith the top management at Pen&el and re.affirm his goal to get the :artan
contract by legal means. Ge could seek the help of the 9.8. commercial attachR in :artan to
continue a dialogue 'ith :artan(s deputy minister of communications. Ge could propose other
creatie, legal changes to the Pen&el(s bid, een at the cost of reducing the profitability of the
current pro)ect. /oncessions such as training programs, schools and other public 'orks pro)ects
may be legal, get the attention of the :artan goernment and raise Pen&el(s profile both at home
and abroad. In the 'orst case, if the :artan goernment does not agree to any of the creatie,
legal *extras+ that Pen&el can proide in order to 'in the contract, /heng should report this to
Pen&el(s management and be 'illing to 'alk a'ay from the :artan pro)ect.
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