Richmond, Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodeling of its stores to attract a more upscale clientele.
Before finalizing these plans, two stores were remodeled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. While completing the financial reports, Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses.
- According to the IMA’s Statement of Ethical Professional Practice, would it be ethical for Perlman not to report the inventory as obsolete?
- Would it be easy for Perlman to take the ethical action in this situation? (CMA, adapted)
EXERCISE 1–9 Ethics and Decision Making
Assume that you are the chairman of the Department of Accountancy at Mountain State University. One of the accounting professors in your department, Dr. Candler, has been consistently and uniformly regarded by students as an awful teacher for more than 10 years. Other accounting professors within your department have observed Dr. Candler’s classroom teaching and they concur that his teaching skills are very poor. However, Dr. Candler was granted tenure 12 years ago, thereby ensuring him life-long job security at Mountain State University.
Much to your surprise, today you received a phone from an accounting professor at Oregon Coastal University. During this phone call you are informed that Oregon Coastal University is on the verge of making a job offer to Dr. Candler. However, before extending the job offer, the faculty at Oregon Coastal wants your input regarding Dr. Candler’s teaching effectiveness while at Mountain State University.
How would you respond to the professor from Oregon Coastal University? What would you say about Dr. Candler’s teaching ability? Would you describe your answer to this inquiry as being ethical? Why?
EXERCISE 1–10 Corporate Social Responsbility
In his book Capitalism and Freedom, economist Milton Friedman wrote on page 133: “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it . . . engages in open and free competition, without deception or fraud.”
Explain why you agree or disagree with this quote.