Horngren’s Cost Accounting A Managerial Emphasis 17th Global Edition by Srikant M. Datar solution ma
Several “year-end” actions are clearly are in conflict with the statement’s principles and required standards and should be viewed as unacceptable.
(a) Subscription revenue received in December in advance for magazines that will be sent out in January or a later date is a liability. Depicting it as revenue falsely represents next year’s revenue as this year’s revenue.
(b) Revising the estimate for pension liability and expense would violate Generally Accepted Accounting Principles unless the pension liability is currently overstated. Recording this transaction would result in an overstatement of income and could potentially mislead investors.
(c) Booking advertising revenues that relate to February in December falsely represents next year’s revenue as this year’s revenue.
The other “year-end” actions occur in many organizations and fall into the “gray” to “acceptable” area. Much depends on the circumstances surrounding each one as witnessed below:
(d) Cancelling three of the division’s least profitable magazines, resulting in the layoff of thirty employees. While employee layoffs may be necessary for the business to survive, the layoff decision could result in economic hardship for those employees who lose their jobs, as well as result in employee morale problems for the rest of the division. Most companies would prefer to avoid causing hardship for their existing employees due to layoffs unless necessary for the survival of the business as a whole.
(e) Selling the new printing equipment that was purchased in February and replacing it with discarded equipment from one of the company’s other divisions. The previously discarded equipment no longer meets current safety standards. Again, while this method may result in a short-term solution for the Controller and the Production Manager personally, this decision may harm the corporation financially as a whole, not to mention the potential resulting injuries to production workers from hazardous equipment. This method would be also be ethically questionable and would likely violate the IMA’s ethical standards of integrity and credibility.
(f) Delaying maintenance on production equipment that was scheduled for October until January. Performing regular scheduled maintenance is important for the safe and efficient operation of production equipment. While a three-month delay may not seem significant, delaying maintenance may put the production employees at risk of physical harm, and put company at financial risk should the equipment malfunction and cause injury. Furthermore, failure to keep a regular maintenance schedule may void the warranties on the equipment. The Standards of Ethical Behavior require management accountants to communicate information fairly and objectively and to carry out duties ethically.
3. Gellar should directly raise her concerns with the CFO, especially if the pressure from the CFO is so great that the only course of action on the part of the Controller is to resort to unethical behavior. If the CFO refuses to change his direction, the Controller should raise these issues with the CEO, and then the Audit Committee and the Board of Directors, after informing the CFO that she is doing the same. The Controller could also initiate a confidential discussion with an IMA Ethics Counselor, other impartial advisers, or her own attorney. Under extreme circumstances, the Controller may want to resign if the corporate culture of Phoenix Press is to reward executives who take year-end actions that the Controller views as unethical and possibly illegal.
1-37 (40 min.) Ethical challenges, global company.
1. The overarching principles of the IMA Statement of Ethical Professional Practice are Honesty, Fairness, Objectivity, and Responsibility. The statement’s corresponding “Standards for Ethical Conduct…” require management accountants to