Question

Describe the ethical dilemma Bonnie is facing in her first day on the job. Describe the essential accounting issue at stake in her dilemma. How has the overall environment of the organization played a role in creating this dilemma? Knowing Bonnie’s past working relationship with the CFO (Ed) and her direct report to Bill, what would you prescribe as next steps for Bonnie? How might Bill’s intimidating personality influence Bonnie? Use the ethical theory you think would be most helpful in this situation and describe how it might guide Bonnie.

 

 

Answer 1

 

Introduction

An ethical dilemma also referred to as an ethical paradox, is basically a decision-making problem where there are two moral imperatives, which are neither unambiguously preferable or acceptable. In most cases, an ethical dilemma arises from situational conflict where obeying a certain directive would lead to transgressing of another directive. To address an ethical dilemma, the moral code or ethical system has to be put into consideration. This paper describes the ethical dilemma being faced by Bonnie Morgen in her first day on the job and its connection to accounting issues at stake. Also, the paper examines how the overall environment of the organization contributed to creating Bonnie's ethical dilemma. Last but not least, the paper recommends the most appropriate course of action for Bonnie to take.

 

The Ethical Dilemma faced by Bonnie

It is Bonnie Morgan's first day on the job. She is employed as a controller of a manufacturing business, which manufactures and sells industrial components. Being her first day on the job, Bonnie is faced with an ethical dilemma after the senior accounting officer (Rich) informs her about misstatements in the financial statements for the previous month. An analysis of the previous month's financial statements indicates that there was a drastic increase in the price of raw materials accompanied by the work stoppage. Such occurrences are likely to have a significant impact on the year-end financials since last month's income is overstated by $121,171 (Lamberton, 2018). Also, the revenue is overstated by $1,514,643. Plus, the company is stealing sales from the next year. Given that the year-end is near and Bonnie has just realized that she has replaced Jerry Mayfare, who did not have any accounting training and, therefore, responsible for preparing faulty financial statements after he was pressured by Bill. Now, Bonnie has to make a decision as to whether to report the fraudulent financial transactions and correct the revenue and income figures or not.

 

Accounting Issues

There are several essential accounting issues at stake. One of the issues is completeness and accuracy of the financial statements as stipulated under the Generally Accepted Accounting Principles (GAAP). As stated in the case study, some key items in the previous month's financial statements are overstated. For instance, the income is overstated by $121,171. At the same time, the revenue is overstated by $1,514,643 (Lamberton, 2018). Therefore, the financial statements (income statement) are not only inaccurate but also contains fraudulent figures. Presentation of such statements to shareholders, investors, suppliers, vendors, government, and other users of financial statements will mean duping them. Furthermore, overstatement of revenue and income is against the accounting standards and is considered a criminal offense under the law (Mintz& Morris, 2014). Another accounting issue is collusion and pressure from top management. The reason why Jerry inflated the revenues and income is because he was pressured to do so by Bill. Therefore, the controllers and accountants do not have the required independence to prepare accurate and reliable financial statements.

 

Organization's Environment

The overall environment of the organization has not played a role in the ethical dilemma. In fact, most of the company's employees are ethical. A good example is Rich. Out of ethics, Rich immediately informed Bonnie about the overstatement of financial statements to attain revenue and profit targets. If Rich was not ethical, he would have just kept silent on the issue until Bonnie realized the misstatements on herself. Another example is Garry. Even after being told by Bill not to account for depreciation so that the budgeted target budget can be attained, he refused and said that the budgeted target budget cannot be reached by using accounting tricks. This is a clear indication that the organization's environment does not have any impact on the ethical dilemma being faced by Bonnie. However, the pressure to meet budgeted profit targets has fueled the dilemma. Since the budgeted profit targets are extremely high, Bill and Jerry were forced to overstate the revenues and income in order to meet the targets.

 

Working Relationships and Recommendations

Bonnie Morgen has been working with the company for several years. Most recently, Bonnie worked at the company's headquarters, where she worked directly for the Chief Finance Officer (CFO) by the name Ed Judsen. In her new job as a controller, Bonnie will be working with Bill Ridgefield (the division general manager) and the chief executive officer (CFO). Now that Bonnie is aware of misstatements in the financial statements, she should exercise independence, integrity, partiality, and openness while relating with both Bill and the CFO (Johnson, 2019). Irrespective of the past relationships, Bonnie should point out the misstatements to Bill and CFO (Mintz& Morris, 2014). However, she should be very cautious when reporting to Bill. This is simply because Bill's intimidating personality might influence Bonnie's decision on whether to report the misstatement or not. Since Bill is Bonnie's boss, and he has vast knowledge and experience in the company, he is likely to use his power to coerce Bonnie not to point out the misstatements (Lamberton, 2018). After all, Bill advocate for overstatement of revenues and incomes in order to show that the company is healthy, i.e., able to meet its budgeted target profit. If Bonnie fails to heed Bill's warnings, she might end up losing her job. Therefore, Bonnie has to weigh all the available options before deciding on the course of action. Most importantly, Bonnie must stick to her moral and ethical obligation to the company regardless of the consequences.

 

Deontology Theory

The ethical dilemma being faced by Bonnie is unique in some way since it is her first day in the job and there are incentives and pressure from the top management to overstate the financial statements. Furthermore, the end of the year-end is near, and hence, Bonnie has to make swift decisions before it is too late. Based on Bonnie's situation, the ethical theory that is most helpful is the Deontology Theory. According to Deontology theory, the morality of action must be examined on the basis of whether that action is right or wrong in line with a certain set of rules rather than the consequences of the action (Mintz& Morris, 2014). Via the use of this approach, Bonnie will be better positioned to rationalize morality on the accounting standards, procedures, and rules without minding whether she will lose her job. Bonnie will make sure the misstatements in the previous month are corrected to reflect the true and fair position of the company. It is her duty, under deontology theory, to make sure accurate financial statements are prepared and presented to stakeholders (shareholders, employees, investors, suppliers, vendors, etc.).

 

Conclusion

Pressure from the top management is one of the leading causes of ethical dilemmas in most of the organizations. It becomes worse if the organization does not have ethical standards in place. Bonnie is facing an ethical dilemma due to pressure from top management. She has an ethical obligation to make sure that the financial statements are prepared in line with the accounting standards and regulations. Hence, she must report the misstatements to the general manager and the CFO.

Bonnie Morgen: First day on the Job