Question

Ethics is a concern for financial accounting and managerial accounting. What are the potential ethical issues associated with Budgeting. There are opportunities to be unethical; discuss the potential ethical issues associated.

Answer 1

Budgeting is one of those parts in accounting which is almost totally based upon assumptions. The assumptions of the one preparing the budget is all that matters. He would definetely look into the recent years performance as well but mainly its assumptions that help in preparing a budget.

Since its based on estimations and assumptions, if the person preparing it is unethical he could cause harm to the company in a whole or to certain staff belonging to certain departments by making assumptions which are absurd and not achievable.

For example if the person in charge has any issues against the sales team and dont want them to earn a bonus or so, he could set up budgeted sales in such a way that it is practically impossible to achieve those.

In the same way he could show higher assets such as cash in hand and could propose deals to buy from someone he knows or something of that sort.

Such unethical acts could lead to wromg decisions being made by the management. Mainly because it is the budget on which they focus and they try their best to match actual with the budget.

So it is highly important that it is someone with strong ethics and integrity that prepares the budget and also that its not handed to a single person but rather a team of people and hence one single person alone cant cess with the budget.

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