CASE 5-61 PRODUCTION REPORT, ETHICAL BEHAVIOUR LO3 Consider the following conver

Question

CASE 5-61 PRODUCTION REPORT, ETHICAL BEHAVIOUR LO3 Consider the following conversation between Gary Means, manager of a division that produces industrial machinery, and his controller, Donna Simpson, a certified management accountant and certified practising accountant GARY: Donna, we have a real problem. Our operating cash is too low and we are in desperate need of a loan. As you know, our financial position is marginal and we need to show as much income as possible-and our assets need bolstering as well.

Explanation / Answer

In this case what Gary is asking Donna to do is completely unethical from an accounting perspective. Gary is asking Donna to use creative accounting (in other words window dress the accounts) by falsely inflating the percentage completion with regards to the company’s work in process. This will reduce the company’s cost of goods sold and hence its gross margins will be shored up.

Donna should not agree to Gary’s proposal in this case as doing so will be unethical and will lead to her violating her professional code of ethics that she is bound by in her capacity as a certified management accountant.

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