3 Journal ethics -from one page to two pages-2 case analysis ( one already have the answers but need to rephrase, the other needs answers-I will post here the files needed Journal 1 and Case analysis one are due on Jan 7Journal 2 and Case Analysis 2 are due on Jan 14Journal 3 is due on Jan 18
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Individual Ethics Journal
WEEK 1
1. Which aspects in this class (e.g., readings, assignments, discussion forums) most
deeply affect me this week? Why? Which ones were most relevant to me?
2. What new insights did I gain about myself? others? the accounting profession?
3. If there wasn’t anything in this class that affected me this week or seemed
relevant, why wasn’t there? Is anything not clear to me?
4. Give an example of a situation where you experienced an ethical issue
discussed in one of the readings, cases, forums or quizzes. Explain how this
situation relates to the issue you selected.
1. Which aspects in this class (e.g., readings, assignments, discussion
forums) most deeply affect me this week? Why? Which ones were
most relevant to me?
2. What new insights did I gain about myself? others? the accounting
profession?
3. If there wasn’t anything in this class that affected me this week or
seemed relevant, why wasn’t there? Is anything not clear to me?
4. Give an example of a situation where you experienced an ethical issue
discussed in one of the readings, cases, forums or quizzes. Explain
how this situation relates to the issue you selected.
* adapted
in part from Massey and HIsse, 2009. Walking the walk: Integrating
lessons from multiple perspectives in the development of an accounting ethics
course. Issues in Accounting Education, vol. 24, no. 4, pp. 481-510.
Try to summarize your answers so that you can submit a brief report each
week (preferably one or two pages) using the attached form. Please note that
by submitting your ethics journal entries in this assignment folder, your
answers will be only accessible by your instructor, and will be kept
confidential.
Use the attached form there to answer the questions and submit it in the assignment
folder. This assignment is an individual reflection on what you’ve learned during the
week, so I recommend you submit it after reading the textbook, taking the quiz and
submitting the case analysis. You don’t have to submit a complete summary of all
you learned, but reflect on what impressed you the most. It is not meant to be about
the case analysis, but you may comment on what you learned from the case, if this is
what most impressed you among the assignments for that week.
Case Analysis One
instead of the questions at the end of the case in the textbook, please answer the
following questions adapted from Mintz & Morris p. 58:
1. Do you agree with Leroy’s statement that it doesn’t matter what the numbers look
like because he is the sole owner? Even if it is true that Leroy “owns” the board of
directors, what should be the role of the directors in this matter?
2. Imagine that you are Sims and you hold both the CPA and CMA qualifications.
Use an utilitarian analysis to help you decide what to do. Evaluate the harms and
benefits of alternative courses of action. According to utilitarianism, what should you
do? What are your ethical considerations in deciding whether or not to tweak the
numbers?
3. Assume as in question #2, but now use the deontology/ rights principles analysis
to help you decide what to do. Do the ends justify the means in this situation?
Explain. According to deontology/ rights principles, what should you do? What are
your ethical considerations in deciding whether or not to tweak the numbers?
4. Assume as in question #2, but now use the justice as fairness analysis to help you
decide what to do. Who or what groups have equal rights in this situation? Which is
the most fair or just action that Sims can take?
5. Assume as in question #2, but now use the virtue ethics approach to help you
decide what to do. Which virtues are most important for you to put into practice in this
situation? What barriers are you likely to face? How would you overcome them? Is it
worth jeopardizing your job in this situation? Why or why not?
Case 1-9 Cleveland Custom Cabinets
This case is treated as GVV in the Test Bank IM in Chapter
2. Faculty can assign the case in Chapter 1 or delay it until
Chapter 2, if they plan to use it for GVV testing purposes in
Chapter 2.
Cleveland Custom Cabinets is a specialty cabinet manufacturer for high-end homes in the
Cleveland Heights and Shaker Heights areas. The company manufactures cabinets built to the
specifications of homeowners and employs 125 custom cabinetmakers and installers. There are
30 administrative and sales staff members working for the company.
James Leroy owns Cleveland Custom Cabinets. His accounting manager is Marcus Sims, who
reports to the director of finance. Sims manages 15 accountants. The staff is responsible for
keeping track of manufacturing costs by job and preparing internal and external financial reports.
The internal reports are used by management for decision making. The external reports are used
to support bank loan applications.
The company applies overhead to jobs based on direct labor hours. For 2016, it estimated total
overhead to be $4.8 million and 80,000 direct labor hours. The cost of direct materials used
during the first quarter of the year is $600,000, and direct labor cost is $400,000 (based on
20,000 hours worked). The company’s accounting system is old and does not provide actual
overhead information until about four weeks after the close of a quarter. As a result, the applied
overhead amount is used for quarterly reports.
On April 10, 2016, Leroy came into Sims’s office to pick up the quarterly report. He looked at it
aghast. Leroy had planned to take the statements to the bank the next day and meet with the vice
president to discuss a $1 million working capital loan. He knew the bank would be reluctant to
grant the loan based on the income numbers in Exhibit 1. Without the money, Cleveland could
have problems financing everyday operations.
Exhibit 1
Cleveland Custom Cabinets
Net Income for the Quarter Ended March 31, 2016
Sales
$6,400,000
Cost of goods sold
4,800,000
Gross margin
$1,600,000
Selling and administrative expenses
1,510,000
Net income
$ 90,000
Ethical Obligations and Decision Making in Accounting, 4/e
© 2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Leroy asked Sims to explain how net income could have gone from 14.2 percent of sales for the
year ended December 31, 2015, to 1.4 percent for March 31, 2016. Sims pointed out that the
estimated overhead cost had doubled for 2016 compared to the actual cost for 2015. He
explained to Leroy that rent had doubled and the cost of utilities skyrocketed. In addition, the
custom-making machinery was wearing out more rapidly, so the company’s repair and
maintenance costs also doubled from 2015.
Leroy wouldn’t accept Sims’s explanation. Instead, he told Sims that the quarterly income had to
be at least the same percentage of sales as at December 31, 2015. Sims looked confused and
reminded Leroy that the external auditors would wrap up their audit on April 30. Leroy told Sims
not to worry about the auditors. He would take care of them. Furthermore, “as the sole owner of
the company, there is no reason not to ‘tweak’ the numbers on a one-time basis. I own the board
of directors, so no worries there.” He went on to say, “Do it this one time and I won’t ask you to
do it again.” He then reminded Sims of his obligation to remain loyal to the company and its
interests. Sims started to soften and asked Leroy just how he expected the tweaking to happen.
Leroy flinched, held up his hands, and said, “I’ll leave the creative accounting to you.”
Ethical Overview
The stakeholders of the firm have a right to financial statements that follow GAAP and have
adequate disclosures. From a deontology perspective, Marcus Sims should follow the rules of the
profession; i.e., GAAP and no subordination of judgment. From a utilitarian perspective all the
stakeholders should benefit, not just Leroy the owner. In adjusting the numbers in order to obtain
a bank loan, the bank could be greatly harmed in order to benefit one stakeholder, Leroy. If Sims
should give into Leroy, then it could be easier to subordinate judgment in the future and may
give Leroy the means to blackmail subordination easily.
From a rights perspective the stakeholders, other than Leroy, have a right to truthful dealings
(including financial statements) with the firm. From a deontology perspective, the firm has a
duty to be truthful. From a utilitarian perspective, all stakeholders should be considered in
determining the greatest good. From a virtue perspective the firm owes trustworthiness, respect,
responsibility and fairness to its stakeholders. The firm also has a citizenship responsibility to
pay taxes based upon truthful reporting of operations. The board has an obligation to corporate
governance that means oversight of Sims, and providing an audit committee to ensure that
truthful financial statements are provided to stakeholders and to serve as a check on management
behavior.
The board of directors are there to provide governance, ask questions, and to represent all the
shareholders and fulfill duties to outside stakeholders of the firm. The board should not just
rubber stamp Leroy’s decisions but act independently of management and in the best interests of
the shareholders.
The external auditors have a responsibility to the public interest, and have a duty to be
independent of clients, maintain objectivity and integrity, and exercise due care including
professional skepticism.
Ethical Obligations and Decision Making in Accounting, 4/e
© 2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Questions
1. Do you agree with Leroy’s statement that it doesn’t matter what the numbers look
like because he is the sole owner? Even if it is true that Sims “owns” the board of
directors, what should be their role in this matter? What about the external
auditors? Should Sims simply accept Leroy’s statement that he would handle them?
No, Leroy is not the sole stakeholder to the firm. The firm has creditors (including the
bank), customers, employees, suppliers, and the government, who are all stakeholders.
Leroy possibly has a spouse and dependents who would share in gains and losses.
Leroy’s statements of owning the board and taking care of the auditors should not be
relied upon by Sims. If Sims is the one doing the creative accounting, he will be the one
suffering the consequences, when the fraud is uncovered. Leroy may not want to know
how the creative accounting will be done so he can feign ignorance (like in WorldCom
and Health South scandals).
The case is silent whether Marcus Sims holds the CPA or CMA. Either way, those
standards provide guidance in deciding what to do. Sims reports to the director of
finance. Sims manages 15 accountants. The staff is responsible for keeping track of
manufacturing costs by job and preparing internal and external financial reports. The
internal reports are used by management for decision making. The external reports are
used to support bank loan applications. Sims has a variety of ethical obligations that
dictate honest, objective, careful, and thorough deliberation in making choices including
what the right thing to do is in this case.
2.
a. Assume that Sims is a CPA and holds the CMA. Put yourself in
Sims’s position. What are your ethical considerations in deciding
whether to tweak the numbers?
Now we know Sims is a CPA and CMA. He has an obligation to follow GAAP
and not subordinate his judgment. Sims must be prepared to act out of integrity
even if it means a loss of job. He has a responsibility to the public interest above
all else. Sims has to decide between subordinating his judgment and leaving his
present job, either due to firing or quitting. If Sims leaves his present job, then he
will face a confidentiality issue as to whether it frees him to disclose the
information to others.
Sims would be dishonest to “tweak” the numbers. He might be able to get away
with it one time, but eventually his failings would be discovered. At that time the
consequences would be much more severe because of the cover-up. When the
situation is made public, Sims could be civilly and criminally prosecuted; lose his
CPA license; and be unable to find a job in a financial sensitive area again.
Ethical Obligations and Decision Making in Accounting, 4/e
© 2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Sims should not “tweak” the numbers. The chances are high that Leroy may fire
him on the spot for not following the orders to change the numbers. However,
Sims can more easily explain why he is looking for a new job because he acted on
principle than why he spent time in jail for his actions.
Should Sims decide to go along with something he knows is wrong, Leroy has
something to hold over his head in the future if Sims decides, all of a sudden, to
take the ethical high road.
Loyalty is a key issue in this case. Sims should understand that his loyalty
obligation is not to Leroy and the company but to the public that relies on
accurate and reliable financial information.
b. Assume you do a utilitarian analysis to help decide what to do.
Evaluate the harms and benefits of alternative courses of action. What
would you do? Would your analysis change if you use a rights theory
approach?
Using an act utilitarian analysis, Sims may consider doing as requested by Leroy.
This alternative may seem to provide the greatest good for all concerned as
Cleveland Cabinets can continue in business; Leroy is happy that the bank will
lend more money; the employees and Sims will continue employment with the
firm; creditors will be paid; and the board and shareholders will continue to
believe that all is well with the firm. However, from a rule utilitarian basis,
GAAP rules should never be violated regardless of utilitarian benefits. The ends
do not justify the means of manipulating the data.
From a rights approach, the investors, creditors, and the bank have right to
truthful and non-misleading financial statements following GAAP. The
employees and Sims have the right to earn fair wages for work done, and to be
treated fairly, honestly, and professionally by management. Leroy does not have
the right to run the company as his personal entity but has obligations to a broad
group of stakeholders. He has a duty to provide oversight in an honest, open,
professional manner. He has an obligation to make sure that financial statements
are non-misleading and follow GAAP.
Sims may consider doing minor “tweaks” to the numbers, not as much as
requested by Leroy. Sims may hope that the minor “tweak” will be enough to
satisfy the bank but be realistic to show liquidity for the amount of loans needed.
In this alternative, Cleveland Cabinets and Leroy might have to start tightening
expenses and strategic planning for a tighter future of the firm. Some employees
may be laid off to conserve costs. Sims may receive an angry scolding from Leroy
but keep his position. Sims will need to work with Leroy to develop a realistic
budget while addressing the need to cut costs.
Ethical Obligations and Decision Making in Accounting, 4/e
© 2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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Sims could refuse to “tweak” the numbers. It is highly probably that Leroy will
fire him on the spot. The firm may have a rough time financially with reduced
bank financing, possible bankruptcy, lay-offs, and investors losing money.
However, this might provide a wakeup call to Leroy and the firm to control costs
and to strategically plan and budget the firm to sounder financial well-being.
3. Think about how you would actually implement your chosen action. What barriers
could you face? How would you overcome them? Is it worth jeopardizing your job
in this case? Why or why not?
Sims may want to consult with the external auditors to see if he may have made a mistake
on the applied overhead for the current year. Getting a second opinion should help to
bring into focus what are his ethical responsibilities.
Sims faces push back from Leroy and his position may be at stake. If he discloses his
concerns to outsiders his fellow employees may treat him as a whistleblower; he may be
blamed for not being a team player; he may be retaliated against.
The shareholders, creditors, and the bank may be shocked that the company had its
financial position go south so quickly; they may resent the loss of their investment.
Is this worth Sims losing his job over? Only Sims can say. But would Sims want to stay
working for a company that has made its financial statements a house of cards? Would he
be asked to continually cover his tracks of the creative accounting? Can Cleveland
Cabinets regain profitability without changing the business model (and possibly, some of
the players)? Would Sims be willing to go to jail for Leroy? How would he feel if his
decision became front page news? Would he be proud to defend it?
Ethical Obligations and Decision Making in Accounting, 4/e
© 2017 by McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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