Question

Your boss went to an accounting seminar and learned about the Institute of Management Accountants’ Statement of Ethical Professional Practice. He has called a meeting of; a “fresh from college” accounting hire, the new manager of the accounting department, and you (Finance Director). It seems that the prior manager of the accounting department manipulated the operating results by assigning some of the direct costs of manufacturing to the non-controllable fixed cost category. Therefore, the financial ratios presented a false picture of operations. It looked like everything was running effectively and efficiently – it was not. Upon discovery of this intentional misclassification of costs (to reach the target profits that support the bonus program), the prior accounting department manager was fired without notice.

Your boss expects you to present this event to your fellow participants for discussion. He wants to know if they agree with the immediate firing of the manager. Include in your write-up:

1.    A brief description of the problem using the variables outlined in the assigned article..

2.    An explanation of the applicable section of the IMA’s Statement of Ethical Professional Practice.

3.    Summarize what you think the new hire will say about the firing and why you think he/she took that position.

4.    Summarize what you think the new manager will say about the firing and why you think he/she took that position.

5.    Any other information you deem important.

6.       A brief summary or conclusion.

Article:

Shafer, W. E. (2015). Ethical climate, social responsibility, and earnings management, Journal of Business Ethics, 126, 43-60.

Answer 1

Firing of Accounting Department manager

Immediately after the discovery of intentional accounting misclassification to reach targeted profit for the purpose of bonus scheme is not justified. This is because the department accounting manager should have been given a chance to explain his position. Often intentional manipulation of accounts is not an isolated occurrence. There may be number of such incidents of intentional misrepresentation of accounts and acts of frauds. In order to unearth these frauds it is important to properly investigate the matter. It would be not possible to investigate the matter properly if the accounting department manager is not present during the course of the investigation.

The ethical professional practice also encourages allowing a chance to the employee to present his facts. In-fact the immediate firing of the accounting department manager would adversely influence the new hire as he would think that even allegations will lead to immediate firing without allowing any opportunity of providing his side of the story. The new manager should be given all necessary information to allow him to prepare the books of accounts correctly.           

                  Taking into consideration the above it is clear that the accounting department manager should not have been fired immediately after the findings of accounting misclassification without allowing him an opportunity to be heard.