Question

How would you respond to this post?

On occasion, management is faced with a dilemma, and they need to find a way to avoid large swings in earnings. They must find a way to meet the profits, which were forecasted. The second part of their dilemma is finding a way to succeed without crossing ethical boundaries (Dugan & Taylor, 2016). Sometimes the answer given may not be considered wither right or wrong, but whether it achieved the goal of keeping shareholders happy. Even when following the required standards and principles, this action can be considered unethical. The borderline unethical perception because the information is misleading (Dugan & Taylor, 2016). The misleading direction depends on the intended outcome. The results are looked at carefully, depending on whether the information is used to increase compensation or deceive the stakeholders. Of course, there must also be a consideration if the outcome is simply to keep the earnings and spending at a level balance, to avoid any cause for concern (Dugan & Taylor, 2016). Earnings can be managed by following unethical practices such as reducing amounts in other areas to ensure they can meet forecasted share prices. An ethical practice will be if a business decides to spread out the purchases of large pieces of equipment to different quarters, so their spending does not drastically fluctuate. They are still purchasing what they intended and forecasted, just not all at once, taking a considerable hit to the spending budget. They are not actually manipulating numbers, just moving actual numbers differently in the flow (Dugan & Taylor, 2016). If appropriately done, shareholder wealth will not be affected because the long-term values do not change. The money is where it is supposed to be, and there are no risks of having to continue moving money around to hide fluctuations (Dugan & Taylor, 2016). Items added to the left-hand side of a balance sheet are considered investments, which take cash to purchase. The right-hand side of the balance sheet is income, and any purchases here increase overall projected earnings (Byrd, Hickman, & McPherson, 2013).

Answer 1

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Post response-

I am in favor to your views because i also agree that Managment faced dilemmas which can cause ethical issues if they are not showing balance between profit maximization and benefit to other stakeholders. There are instances in corporate world where Top management focused on wealth maximization of shareholders and cross many ethical boundaries. some scandals like Volkswagen scandal, wells fargo scandal, Tyron scandal etc. Management like CEO of companies have responsibilities to do business fairly and follow laws and regulations while making ethical decisions Like you said in the post, results and information should be used carefully. Management must not manipulate infomation to decieve stakeholders. for example- A Finance manager may ask his subordinate to manipulate financial data to make it more attractive for investors which is not good.

I think the practice to spread spending is ethical because management would be consiering the investments and figures in right and systematic manner not in manipuative way. if the desired results can be achieved by doing it ethically and create right balance between wealth of shareholders and other stakeholders then it is good action of management.

The only thing i need to understand in your post related to balancesheet because as per my knowledge left hand side is considered to be assets and right hand side considered to be liabilities. i think you will put more light on this.

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