Case 1-8: A Faulty Budget - Jackson Daniels Graduated From L

Case 1 8 A Faulty Budgetjackson Daniels Graduated From Lynchberg State

Jackson Daniels, a recent graduate and employee in Lynchberg Manufacturing's accounting department, prepared a sales budget projecting 250,000 units for 2011, a 25% increase over 2010. He later realizes he may have overestimated sales for a new soaking tank product, projecting twice the likely demand, which could lead to unnecessary hiring and resource allocation. Daniels considers reporting this potential mistake but is conflicted about the timing and possible repercussions. His colleague suggests waiting to see if demand aligns with expectations before raising concerns, warning Daniels it could jeopardize his job. The case raises ethical questions about honesty, stakeholder impact, and professional responsibilities of accountants with CPA and CMA certifications.

Paper For Above instruction

The scenario involving Jackson Daniels illustrates a common ethical dilemma in managerial accounting: whether to disclose a potentially faulty forecast or to delay reporting in hopes that the projected error will not materialize. This situation highlights several critical principles, including integrity, objectivity, and professional responsibility, which are central to the ethical standards governing accountants, especially those with CPA and CMA credentials.

When an employee discovers an error in a financial projection, especially one that could influence significant operational decisions such as hiring, production levels, and resource allocation, the ethical course of action typically advocates for transparency and honesty. The American Institute of CPAs (AICPA) Code of Professional Conduct and the Institute of Management Accountants (IMA) Statement of Ethical Professional Practice emphasize integrity and objectivity. Professionals are duty-bound to report errors or reservations that could affect stakeholders and the overall accuracy of financial reporting.

In Daniels’s situation, reporting the overestimation allows management to make informed decisions, avoid unnecessary costs, and uphold ethical standards. Delay or avoidance, motivated by fear of repercussions or job security, compromises these principles and could lead to greater harm. It risks misleading stakeholders, such as investors, employees, or management, regarding the company's actual performance and outlook. Ethical reasoning suggests that integrity must take precedence over self-interest or fear of retaliation, especially when the consequences could negatively impact stakeholders’ interests or the company’s long-term viability.

The stakeholders potentially affected by Daniels’s decision include Lynchberg Manufacturing’s management, employees, investors, and customers. Management relies on accurate forecasting to make strategic decisions; misrepresented data could lead to overstaffing or misallocation of resources. Employees may face layoffs or job security issues if decisions based on faulty data are reversed or corrected later. Investors depend on reliable financial information for investment decisions, and customers may be indirectly affected if overproduction leads to waste or financial instability.

Using ethical reasoning based on utilitarian principles, Daniels’s obligation is to minimize harm and promote the overall good by ensuring truthful reporting. Ethical standards reinforced in professional codes stress that accountants should act with honesty and objectivity, resisting pressures to suppress or distort information that could mislead decision-makers (Cohen & Pant, 2011). For professionals holding CPA and CMA certifications, violating these standards can undermine public trust and result in disciplinary action or loss of credentials (AICPA, 2014; IMA, 2020). Their role entails advocating transparency and upholding the ethical principles embedded in their certifications.

Legally, misrepresentation or withholding material information could lead to repercussions under securities law or corporate governance standards if stakeholders are misled. While the legal implications depend on jurisdiction, failure to disclose material errors can result in litigation or regulatory sanctions, emphasizing the importance of ethical compliance (Bazley & Slevin, 2009).

Assuming Daniels’s role as a CPA and CMA, his ethical obligations are further reinforced. Both certifications require adherence to strict ethical codes that emphasize integrity, objectivity, and due diligence. The CPA Code of Conduct specifies that accountants must avoid misleading financial information and must act in the public interest (AICPA, 2014). Likewise, the IMA emphasizes practicing with integrity and maintaining professional skepticism and judgment (IMA, 2020). Their roles extend beyond technical competence to include the responsibility for ethical leadership and fostering an environment where honesty prevails.

In conclusion, the ethical framework advises that Daniels should disclose the potential error promptly. Delay for personal or job security reasons violates fundamental ethical principles and could compromise stakeholder trust and decision-making. The case underscores the importance of ethical conduct in managerial accounting, emphasizing that practitioners must prioritize integrity and responsibility over short-term personal interests. Upholding these standards sustains the credibility of financial reporting and supports ethical corporate cultures, ultimately benefiting all stakeholders involved.

References

• American Institute of CPAs. (2014). Code of Professional Conduct. AICPA.
• Bazley, J., & Slevin, J. (2009). Corporate Financial Reporting and Accountability. Cambridge University Press.
• Cohen, J. R., & Pant, L. R. (2011). Ethical perceptions of managerial accountants. Journal of Business Ethics, 103(2), 255-263.
• Institute of Management Accountants. (2020). Statement of Ethical Professional Practice. IMA.
• Kaplan, R. S., & Cooper, R. (1998). Cost & Management Accounting. Pearson Education.
• Moore, L., & Wang, J. (2015). Ethical dilemmas in managerial accounting: A review. Accounting, Organizations and Society, 45, 34-49.
• Prawitt, D. F., Sharp, N. Y., & Wood, D. A. (2011). Conducting survey research in internal audit: Opportunities and challenges. Contemporary Accounting Research, 28(2), 356-376.
• Tomm, B. (2012). Ethical challenges in management accounting: A case-based approach. Managerial Auditing Journal, 27(2), 132-144.
• Wiley, J. (2012). Ethical standards for accountants outlined. Accounting Today.
• Young, S. M., & Kent, M. (2017). Ethical considerations in financial reporting. Journal of Business Ethics, 140(3), 447-460.