Question

Horner Work Wear Inc supplies uniforms for a variety of businesses. Colin Hoffman is a new intern in the accounting department at Horner. To expand sales, The company is considering paying commissions to salesforce. The controller, John Wallace, asks collin to complete an analysis assuming sales would increase 25% under the proposed sales commission plan. This analysis should include one the new breakeven sales figure and the operating profit under the new sales commission plan.

Collin does his best to perform the analysis. He’s not exactly sure what he is doing but he does not want to appear like he does not understand accounting. After he gets his preliminary analysis finished, he calls his friend, Megan Payton who is an accountant analysis at scrubs and more, a competing uniform supplier. He knows Megan from a church group and figures he can trust her. He tells her he’s working on a new project and asks her if they can meet for dinner later, where he can ask her for advice.

At dinner, Colin confesses to Megan that he really does not know if he did his analysis correctly. Making assured him that she has worked on similar things at her company. She asked him if they can go over their analysis together. He really agrees because this is just the type of help he had hoped to get. He shows her the spreadsheet he has been working on; The two of them discuss each item on the analysis. Can’t explain his reasoning behind each calculation and his dad assumptions. Megan tells him that his analysis is thorough and agrees that he has done it all correctly as far as she can tell. 

how confident in his work, Collin turns in the proposed sales commission plan analysis the following day. His report ends with the recommendation that the new sales commission plan the undertaking, since it will lead to a significant increase in operating income with only a small increase in break even sales. John Wallace glasses through the report and is impressed with the appearance of the report; it looks professional and complete. Since John has a lot of other work tasks, he approves a new sales commission plan without any further analysis or investigation.

when he is booking some payroll entries for the following week, Colin realizes that he made an error in the CVP analysis he did for the sales commission project. He failed to include the monthly salary of the sales staff and his computations. Collin is in panic. If he tells John Wallace of his mistake, Collin is afraid he will not be offered a full-time position upon completion of his internship. Collin decides to keep quiet and not let the controller know of his air. He reasons that it is unlikely that the difference between what he projected versus the actual expenses will be discovered since Horner does not create detailed monthly operating statements.

1. Using the IMA statement of ethical professional practice as an ethical framework, and answer the following questions:

What are the ethical issues in this situation?

What is Collins Hoffman’s  responsibility as a management accountant?

What is John Wallace’s responsibility as a management accountant?

What is Megan Payton‘s responsibility as a management accountant?

2. What would the impact and break even sales from failing to include the fixed monthly salaries? With a break even using the erroneous Data be lower or higher than the correct breakeven (the breakeven calculation includes the monthly salaries)? Do you think this air would be likely to influence the decision of whether to proceed with the new sales commission proposal?

3. Discuss specific steps Calen should take to resolve the situation. Refer to the IMA statement of ethical professional practice in your response.

Answer 1

Ethical Standards:

The principles and standards developed by Institute of Management Accountants to help management accountants deal with ethical challenges to remind the accountants that the society expects professional accountants to show the highest level of ethical behavior.

Competence:

It is the responsibility of the person to continue the proper level of professional expertise by the continual expansion of skills and knowledge. Perform the professional duties in accordance with the relevant regulations, laws, and technical standards.

Credibility:

It is the responsibility of the person to communicate the information honestly and objectively and disclose all the appropriate information, that could reasonably affect the intended users understand the reports, analyses or recommendations.

Integrity:

It is the responsibility of the person to mitigate the conflict of interests, refrain from any engagement in any conduct that would prejudice on ethical conduct of the duties and abstain any engagement and support of any activity that might disrepute the profession.

Confidentiality:

It is the responsibility of the person to retain the information confidential except when disclosure is required by law and refrain the use of confidential information for unethical or illegal advantage.

1.

On the basis of Institute of management accountant, it is required the following:

a.

The ethical issues in this situation are:

Competence: The members should maintain professional expertise. They must adhere and perform their duties in accordance with prescribed standards and laws. In the present case, due to mistake, C had done an inaccuracy. But ignoring of the same mistake results in a breach of the principles or violated the legal rules of reporting.

Confidentiality: Each member should keep the information confidential except when there is a legal requirement to disclose the same. If there is any legal requirement to disclose the information, then it should be disclosed. In this case, C disclose the confidential information to M (an employee of competitor company). Thus, C violate the standard.

Integrity: Each member should not engage or support any activity that causes discredit to the profession. In the present case, C ignores the error made in the report and this may result in discredit the profession.

Credibility: Member must represent the true and fair view of financial statements as well as other information to its users as it may affect their decision making. In this case, C does not disclose the error made in the report. Thus, C violates the ethical principle.

b.

C’s responsibilities as a management accountant are, to be honest, responsible, fair, and objective. C should try to correct the mistake by reporting it to the immediate supervisor. C is also accountable for maintaining confidential information so that it should not be disclosed to anyone.

c.

Before the approval, J is responsible to check the reports that are given by C. It is not adequate that a report looks professional, but rather J has an obligation to equally check that it is precise or accurate.

d.

The responsibility of M is to make ethical decisions. As M is the employee of the competitor company and it is unethical for S to look at the report given by C. M should encourage C to take advice from the supervisor. M may give the general advice but not go through the confidential information.

2.

Due to the omission of fixed monthly staff salary from the report, the break-even sales would be lower than the actual it is. This error may influence the decision of the company about to go with the new proposal or not because it would make the proposal looks more profitable than in actual.

3.

Firstly, C should discuss the error with the prompt supervisor. After this mistake, if C has any kind of concern about the employment with the company, C should communicate to the HR department.