Accounting

Managerial accounting professional follow a code of ethics. As a member of the Institute of Management Accountants, the managerial accountant must comply with standards of ethical conduct.

Required:

1. Read the
Statement of Ethical Professional Practice
posted at

www.imanet.org

(Under “Career Resources” select “Ethics Center”, and then select “IMA Statement of Ethical Professional Practice”.)

2. What 4 overarching ethical principles underlie the IMA’s statement?

3. Describe the courses of action the IMA recommends in resolving ethical conflicts.

4. In the Ethical Group discussion forum, comment on what knowledge you gained from reading the Statement of Ethical Professional Practice.

5. Please choose one of your fellow group members and discuss their comment reference what they gained from reading the Statement of Ethical Professional Practice

M.K. Gallant is president of Kranbrack Corporation, a company whose stock is traded on a national exchange. In a meeting with investment analysis at the beginning of the year, Gallant had predicted that the company’s earnings would grow by 20% this year. Unfortunately, sales have been less than expected for the year, and Gallant concluded within two weeks of the end of the fiscal year that it would be impossible to report an increase in earnings as should be postponed to the new year – including canceling or postponing orders with suppliers, delaying planned maintenance and training, and cutting back on end-of-year advertising and travel. Additionally, Gallant ordered the company’s controller to carefully scrutinize all costs that are currently classified as period costs and reclassify as many as possible as product costs. The company is expected to have substantial inventories at the end of the year.

REQUIRED:

1. Why would reclassifying period costs as product costs increase this period’s reported earnings?

2. Do you believe Gallant’s actions are ethical?

Why or why not?

Memo Assessment:

Labor costs of an auto repair mechanic are seldom based on actual hours worked. Instead, the labor cost is based on an industry average of time estimated to complete a repair job. This means a customer can pay, for example, $120 for two hours of work on a care when the actual time worked was only one hour. Many experienced mechanics can complete repair jobs faster than the industry average. Assume that you are asked to complete such a survey for a repair center. The survey calls for objective input, and many questions require detailed cost data and analysis. The mechanics and owners know you have the survey and encourage you to complete it in a way that increase the average billable hours for repair work.

REQUIRED:

Write a one-page memorandum to the mechanics and owners that describes the direct labor analysis you will undertake in completing this survey.

MEMO – Should include the following points:

Objectivity: A statement about the need to be objective in the analysis.

Cost Accounting Estimation: The memo should outline how cost estimation is conducted. For example describe how regression analysis could be used

Business Concerns: The memo should point out that the repair business should follow established business practices for setting cost estimates. Examine fairness to customers, perception repair business over charging

Mechanic-Related Issues: quality of work, and mechanic compensation

MEMO FORMAT:

TO: MECHANICS AND OWNERS

FROM: ETHICAL STUDY

RE: ANALYSIS OF LABOR COSTS FOR SURVEY

In conducting interviews and observing factory operations to implement an activity-based costing system, you determine that several activities are unnecessary or redundant. For example, warehouse personnel were inspecting purchased components as they were received at the loading dock. Later that day, the components were inspected again on the shop floor before being installed in the final product. Both of these activities caused costs to be incurred but were not adding value to the product. If you include this observation in your report, one or more employees who perform inspections will likely lose their jobs.

REQUIRED:

1. As a plant employee, what is your responsibility to report your findings to superiors?

2. Should you attempt to determine if the redundancy is justified? Explain.

3. What is your responsibility to the employees whose jobs will likely be lost because of your report?

4. What facts should you consider before making your decision to report or not?