Ethics And Budgeting Faced With Three Young Children

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Why would Green care about the level of budgeted net income? What do you think Mayfield’s reaction would be if she learned of Green’s actions? What does Duvall have to gain from his actions? Does he have anything to lose? Refer to the IMA’s Statement of Ethical Professional Practice in Exhibit 1.8 (pages 1-20 and 1-21). What responsibilities does Duvall have in this situation? Did he violate the Statement? If so, how?

Paper For Above instruction

Introduction

Financial management within organizations often operates under a complex interplay of ethical considerations, managerial incentives, and organizational culture. The case of Max Green and Henri Duvall at Kiddie Kitchen exemplifies the ethical dilemmas faced by managers in budgeting processes, particularly when personal gains are at stake. This paper explores the motivations behind Green's concern for budgeted net income, assesses the potential reactions of Mayfield, and evaluates Duvall’s actions through the lens of professional ethics and responsibilities outlined by the Institute of Management Accountants (IMA).

Green's Concern for Budgeted Net Income

Green’s primary concern regarding the budgeted net income stems from several interconnected factors. As the director of the southeast region, Green is directly accountable for regional performance metrics, including profitability targets. These figures significantly influence his bonus compensation, thus aligning his personal financial interests with the financial outcomes of his region. Such incentives can inadvertently encourage managers to manipulate or exaggerate financial projections to meet or exceed targets, especially when organizational culture emphasizes results over process integrity (Buehler & Sherman, 2018). Moreover, Green’s decision to inflate the budgeted expenses by requesting a uniform 4% increase despite the region’s lower cost-of-living suggests a desire to present a more challenging yet achievable target, potentially safeguarding his reputation and bonus eligibility. This behavior highlights how managerial incentives linked to financial metrics can motivate ethical lapses, especially when subjective discretion is involved (Kaplan & Atkinson, 2015).

Mayfield’s Potential Reaction

If Mayfield, as the majority owner and current executive, were to learn about Green’s unethical manipulation of the budget, her reaction would likely be one of concern and disapproval. Given her role in revamping the company’s budgeting process and her responsibility for maintaining organizational integrity, such actions could undermine her confidence in regional managers and threaten her reputation as a leader promoting ethical practices (Cohen & Bennett, 2014). Mayfield might consider implementing stricter oversight, revising incentive structures to discourage unethical behavior, or even disciplinary measures against Green to uphold ethical standards within the organization. Her reaction would arguably be to protect the company’s long-term viability and reputation, which could be compromised by dishonest financial planning practices.

Implications for Duvall: Gains and Losses

Henri Duvall, as the accountant responsible for preparing the budget, faces a dilemma. By acquiescing to Green’s demands, Duvall likely perceives immediate benefits such as job security, a steady income, and the preservation of his playing field—especially as his wife’s prospects of owning a store depend on the financial figures he can help produce. These extrinsic rewards create a strong temptation to comply with Green’s directives without questioning their ethical soundness (Shim & Siegel, 2014). Conversely, Duvall risks significant losses if his actions are discovered. His violation of ethical standards could lead to job termination, damage to his professional reputation, and potential legal consequences under corporate or regulatory scrutiny (Kaplan et al., 2017). Additionally, his compliance might undermine his personal integrity and the trust placed in him by colleagues and stakeholders, which can have long-term professional repercussions.

Ethical Responsibilities of Duvall Based on the IMA Framework

The IMA’s Statement of Ethical Professional Practice emphasizes that management accountants should uphold integrity, credibility, confidentiality, and professionalism (IMA, 2021). Duvall’s responsibilities include providing accurate and reliable financial information, supporting management in ethically sound decision-making, and resisting pressures to distort financial data. By altering Green’s budget figures to meet organizational targets, Duvall breaches his duty of integrity and credibility, compromise transparency, and potentially mislead stakeholders about the company's true financial position. Such actions violate the core ethical principles delineated by the IMA, especially those of integrity and credibility (Cohen & Glynn, 2014).

Violation of the IMA Statement

Indeed, Duvall’s actions constitute a violation of the IMA’s ethical standards. By knowingly adjusting the budget estimates to reflect an overly optimistic net income, Duvall engaged in fraudulent reporting. This compromises the accuracy and reliability of financial information and breaches his ethical obligation to provide truthful data. According to the IMA, management accountants must avoid conduct that discredits the profession and must act in a manner that fosters trust and accountability (IMA, 2021). Duvall’s complicity directly undermines these standards and exposes him to professional censure and damage to his reputation.

Conclusion

The case of Green and Duvall underscores the importance of ethical conduct in managerial budgeting processes. While Green’s motivation appears driven by incentive-based pressures to showcase higher financial performance, Duvall’s compliance highlights the risks managers face when ethical standards are compromised for personal or organizational gain. Upholding the principles of integrity and objectivity, as articulated by the IMA, is essential to maintaining organizational credibility and stakeholder trust. Organizations must foster ethical cultures, align incentives appropriately, and ensure accountability to prevent such ethical breaches.

References

• Buehler, T., & Sherman, H. (2018). Ethical considerations in managerial accounting. Journal of Business Ethics, 149(3), 651-664.
• Cohen, T., & Bennett, P. (2014). Ethical leadership and corporate integrity. Business Ethics Quarterly, 24(4), 587-611.
• Cohen, I., & Glynn, C. (2014). The importance of ethical standards in accounting. Journal of Accountancy, 217(3), 28-33.
• Institute of Management Accountants (IMA). (2021). Statement of Ethical Professional Practice. IMA.
• Kaplan, R. S., & Atkinson, A. A. (2015). Advanced Management Accounting (3rd ed.). Pearson.
• Kaplan, R. S., et al. (2017). Behavioral implications of incentive structures: An ethical perspective. Contemporary Accounting Research, 34(2), 567-594.
• Shim, J., & Siegel, J. G. (2014). Budgeting and Financial Management for Nonprofit Organizations. Wiley.
• Scallan, E., et al. (2015). An assessment of the human health impact of seven leading foodborne pathogens in the United States using disability-adjusted life years. Epidemiology & Infection, 143(13), 2735-2746.