Question

Short Essay (5-10 sentences):

51.      Describe ethical dilemmas in budgeting.

52.      How does technology impact variance analyses?

53.      What issues must be addressed when using return on investment (ROI) as a divisional performance measure?

54.      Define the two most common types of fraud and discuss their impact on financial statements.    Also discuss incentives for managers to commit financial fraud.

Answer 1

Solution.1.When an organization decides to enter into a competitive market, it needs to record and analyse its business activities cost and revenues, to generate profit and to sustain long in market. Budget preparation helps an organization in estimating costs and facilitates in decision making. Ethical dilemmas in budgeting contributes to when an organization's management and employees are assessed on their performance of evaluation of profit by comparing actual with standard budget preparations. When manager needs to distinguish its own interest from organization's interest. Ethical dilemmas in form of recording and reporting of true data on sales and profit level ignoring fraudulent practices to publish increased level of data.

2.Variance analysis is performed to take corrective steps if there's any variance in actual budget from standard budget by careful analysis. Variance analysis is performed at various activity level to compute and control activities. Technology employment in business activities facilitated in more reliable and efficient data recording and analysis. Fast and responsive data generation and comparison, helps manager focus more on decision making activities considering various factors for change. Technology has made work more reliable, responsive and efficient in given time.

53.An investor before investing in an organizations needs to make study and analyze return on investment for the same to ignore loss. ROI provides information on company's profit making capability by applying percentage obtained from previous data. It needs to address data reliability obtained in calculating divisional level of profit making ability. It needs to address company's operational profitability accountability with that of other companies operating/running in competitive business market condition. It provides with reliable divisional performance measurement to investors.

54.Two most common types of fraud and their impact on financial statements are as below:

a)Asset misappropriation- Asset misappropriation is the process by which an individual for personal interests/gains abuses its position and mishandles company's assets and which in turn affects company's cash flow statements through incorrect asset recording and valuation.

b)Corruption- Corruption and bribery can be practiced by any employee of a company and such goes unnoticed in books of records but affects customers and stakeholders trust on company's business activities.

Incentives for managers to commit financial fraud can be to meet bonus target by showcasing false achievement reports on business activities, to safeguard their position if such is evaluated on sales basis, to build and increase stakeholder's investment capital by reporting increased level of revenues.