Identify a specific tool or technique from those identified in Chapter 19, and discuss how the tool is used in your current or former place of employment. (See some of chapter below)
Business Ethics
All employees within an organization are expected to act ethically in their business activities. Given the importance of ethical behavior to corporations and their owners (stockholders), an increasing number of organizations provide codes of business ethics for their employees.
Creating Proper Incentives
Companies like Amazon.com, IBM, and Nike use complex systems to monitor, control, and evaluate the actions of managers. Unfortunately, these systems and controls sometimes unwittingly create incentives for managers to take unethical actions.
Because budgets are also used as an evaluation tool, some managers try to “game” the budgeting process by underestimating their division’s predicted performance so that it will be easier to meet their performance targets.
But, if budgets are set at unattainable levels, managers sometimes take unethical actions to meet the targets in order to receive higher compensation or, in some cases, to keep their jobs.
In a recent example, the largest bank in the United States, Wells Fargo, admitted that it had fired 5,300 employees for opening more than 2 million accounts without customer approval or knowledge. According to the director of the Consumer Financial Protection Bureau, “Wells Fargo employees secretly opened unauthorized accounts to hit sales targets and receive bonuses.”
Code of Ethical Standards
In response to corporate scandals, the U.S. Congress enacted the Sarbanes-Oxley Act (SOX) to help prevent lapses in internal control.
CEOs and CFOs are now required to certify that financial statements give a fair presentation of the company’s operating results and its financial condition.
Top managers must certify that the company maintains an adequate system of internal controls to ensure accurate financial reports.
Companies now pay more attention to the composition of the board of directors. In particular, the audit committee of the board of directors must be comprised entirely of independent members (that is, non-employees) and must contain at least one financial expert.
The law substantially increases the penalties for misconduct.
To provide guidance for managerial accountants, the Institute of Management Accountants (IMA) has developed a code of ethical standards, entitled IMA Statement of Ethical Professional Practice. Management accountants should not commit acts in violation of these standards. Nor should they condone such acts by others within their organizations. Throughout the text, we address various ethical issues managers face.
