Horngren’s Cost Accounting A Managerial Emphasis 17th Global Edition by Srikant M. Datar solution ma
Maddox definitely faces an ethical dilemma. It is not unethical on Maddox’s part to want to please his new boss, nor is it unethical that Maddox wants to make a good impression on his first days at his new job; however, Maddox must still act within the ethical standards required by his profession. Taking illegal or unethical action by capitalizing R&D to satisfy the demands of his new supervisor, Emily Alford, is unacceptable. Although not strictly unethical, I would recommend that Maddox not agree to cut planned bonuses for the Amiven R&D team or sell off the rights to Centrix. Each of these appears to sacrifice the overall economic interests of Pharmex for short-run gain. Maddox should argue against doing this but not resign if Alford insists that these actions be taken. If, however, Alford asks Maddox to capitalize R&D, he should raise this issue with the chair of the audit committee after informing Alford that he is doing so. If the CFO still insists on Maddox capitalizing R&D, he should resign rather than engage in unethical behavior.
1-35 (15-20 min.) Professional standards and management accountants.
The core professional standards governing management accountants include:
1. Competence- Each member:
1-36 (30–40 min.) Professional ethics and end-of-year actions.
1. The possible motivations for Controller Sophie Gellar to modify the division’s year-end earnings are as follows:
(i) Job security and promotion: The company’s CFO is likely to reward her for meeting the company’s performance expectations. Alternately, Gellar may be penalized, perhaps to the extent of losing her job if the division’s performance expectations are not met.
(ii) Management incentives: Gellar’s bonus may be based on the division’s ability to meet certain profit targets. If the House and Home division has already met its profit target for the year, the Controller may personally benefit if new printing equipment is sold off and replaced with the discarded equipment that no longer meets current safety standards, or if operating income is manipulated by questionable revenue and/or expense recognition.
2. 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 abide by the following principles:
1-35 (15-20 min.) Professional standards and management accountants.
The core professional standards governing management accountants include:
1. Competence- Each member:
- Has a responsibility to maintain an appropriate level of professional expertise by continually developing knowledge and skills.
- Performs professional duties in accordance with relevant laws, regulations, and technical standards. Provide decision support information and recommendations that are accurate, clear, concise and timely.
- Recognizes and communicates professional limitations or other constraints that would preclude responsible judgement or successful performance of an entity.
- Has a responsibility to keep information confidential except when disclosure is authorized or legally required.
- Informs all relevant parties regarding appropriate use of confidential information. Monitor subordinates’ activities to ensure compliance.
- Refrains from using confidential information for unethical or illegal advantage.
- Has a responsibility to mitigate actual conflicts of interest, regularly communicate with business associates to avoid apparent conflicts of interest.
- Advises all parties of any potential conflicts.
- Refrains from engaging in any conduct that would prejudice carrying out duties ethically.
- Abstains from engaging in or supporting any activity that might discredit the profession.
- Has a responsibility to communicate information fairly and objectively.
- Discloses all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, analyses, or recommendations.
- Discloses delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and applicable laws.
1-36 (30–40 min.) Professional ethics and end-of-year actions.
1. The possible motivations for Controller Sophie Gellar to modify the division’s year-end earnings are as follows:
(i) Job security and promotion: The company’s CFO is likely to reward her for meeting the company’s performance expectations. Alternately, Gellar may be penalized, perhaps to the extent of losing her job if the division’s performance expectations are not met.
(ii) Management incentives: Gellar’s bonus may be based on the division’s ability to meet certain profit targets. If the House and Home division has already met its profit target for the year, the Controller may personally benefit if new printing equipment is sold off and replaced with the discarded equipment that no longer meets current safety standards, or if operating income is manipulated by questionable revenue and/or expense recognition.
2. 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 abide by the following principles:
- Perform professional duties in accordance with relevant laws, regulations, and technical standards.