Accounting: Ethical Issues in Budgeting
What should an employee do when he or she discovers that there is an error in a projection?
Accounting professionals have a duty to observe high standards of conduct and integrity in order to uphold the reputation of the accounting profession. For instance, if an error occurs in sales projections, the accountant has a duty to correct the error immediately and inform the head of the department or manager of the company. Sales projections are crucial to a company's budget because they give an idea of the amount of revenue the company intends to generate in future. Since they help determine the health of the company, majority of the decisions the company makes will based on the projected figures. If an accountant chooses to conceal errors in the projections, therefore, wrong decisions will be made and the overall performance of the company will be affected tremendously. Moreover, the accountant has a moral obligation to adhere to professionalism and act in accordance of the code of ethics of his profession.
Sometimes, erroneous projections may not affect other aspects of the operation, such as employment. Nevertheless, the accountant still needs to report the errors to the concerned supervisors. This will allow for the corrections, however minimal, to be made, and will ensure that the budget reflects the true financial position of the company. If projections are transparent, clear, and accurate, they will provide the information and tools necessary to determine efficient and effective ways of allocating resources in ways that are consistent with company values. Furthermore, ethical codes of conduct that govern the accounting profession require accountants to refrain from any information they believe contains false or misleading statements, since it results to misleading by omission.
Legal and ethical issues surrounding the case
Daniel conducted an analysis and came up with projected sales of 250,000 units of products, which represents a 25% increase over the sales of 2010. He later realized that he had made a mistake, and that he had erroneously projected twice the level of sales than would likely occur. Pete acted on these numbers and hired additional workers to produce the product. Daniel is undecided on whether to report the issue to Pete or wait to see whether the demand will increase as projected or not. Walker advises Daniel to protect his interests first.
It is against the law to provide financial information that does not present a true and fair view of the financial position of the business. More specifically, Daniel should comply with applicable rules, laws, regulations, and corporate governance policies. Daniel has a moral obligation...
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