Business Ethics: Booking the Budget Teaching Notes

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ACCOUNTING MINICASE: ACCT – 08
TEACHING NOTES

BUSINESS ETHICS PROGRAM

Booking the Budget
Teaching Notes
What Are the Relevant Facts?
1.

Maria and Andy have organized and are
responsible for the accounting system of the HMO.

2.

Bob and Connie, executive officers of the HMO,
are mainly concerned with rosy sales results.

3.

Financial sales accruals have been recorded for
numbers that are closer to budget projections than
actual sales.

4.

Auditors reviewing the financial figures will
require adjustments to the inflated sales accruals.

5.

Maria and Andy can begin to look for new jobs.

6.

Maria and Andy can do nothing.

What Are the Ethics of the Alternatives?
1.

Do readers of the newsletter have a right to expect
unbiased financial reporting?

2.

Do Maria and Andy have any obligations that
require them to prepare accurate interim financial
reports?

3.

Does the board have a right to receive accurate
financial reports?

4.

Do Maria and Andy have a right to be able to
approach their superiors about an issue like this
without fear of reprisal?

5.

Is there an inequitable burden imposed on readers
of the financial data?

6.

Is there an unfair benefit received by those who
endorse the current financial reporting practices?

7.

Is there a cost to the accounting profession from
financial reporting of this nature?

What Are the Ethical Issues?
1.

To what extent are Maria and Andy responsible to
take action to curtail the recording of budgeted
sales?

2.

To what extent are the auditors responsible for
supporting better interim accruals of sales?

3.

To what extent is there an obligation by the
company to ensure that only correct data about
financial results is recorded and disseminated?

Who Are the Primary Stakeholders?






Maria
Andy
Readers of the monthly newsletters
Possibly Connie, depending on his knowledge and
stand on the reporting practices
The board of directors

What Are the Practical Constraints?
1.

Everybody knows that interim reporting is “just a
bunch of estimates” anyway.

2.

Maria and Andy have no authority to make the
decisions they want to make.

3.

Maria and Andy may be fired if they decide to talk
to Bob about their concerns.
The auditors are hired by the HMO, and they may
already be aware of the practice.

What Are the Possible Alternatives?
1.

Maria and Andy can inform Bob of their
dissatisfaction.

4.

2.

Maria and Andy can start a process to develop a
formal mechanism, i.e., an ethics committee, to
consider ethical issues within the firm.

What Actions Should Be Taken?

3.

Maria and Andy can ascertain whether Connie and
the Board are completely aware of the practice.

4.

Maria and Andy can inform the auditors and ask
them to make financial recommendations about the
practice.

1992 Arthur Andersen & Co, SC. All rights reserved.

1.

What action would you take if you were Maria or
Andy?

2.

Which ethical theory (utilitarian, rights, justice)
best justifies your decision?

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