Managerial Accounting Ethical Dilemma

Ethical Dilemma

Les Pulaski is facing an ethical dilemma relating to bonuses from a product that was returned to the company. The dilemma is brought by the fact that the firm’s accountant labeled the returned product as an overhead expense on the plantwide Overhead account resulting in erroneous award of a bonus exceeding $1,000. This situation is a reflection of some of the ethical dilemmas that could emerge in a company. One of the ethical issues in this situation is unethical accounting by the company accountant. Unethical accounting is a practice that is usually fueled by greed, management pressure, incentives, and bonuses (Oseni, 2011). The unethical accounting could result in huge losses for the company since the order for 7,500 units of a new product was returned and labeled as an overhead expense. The second ethical issue in the situation is whether Pulaski should accept the bonus. By receiving the bonus, Pulaski would have intentionally endorsed the accountant’s unethical practice.

One of the actions that Pulaski should take in this situation is to reject the bonus since it is erroneously labeled as an expense. Since the products were returned to the company, they do not represent an overhead expense to the plantwide Overhead account. By rejecting the bonus, Pulaski would have acted in the best interest of the company and all stakeholders in the organization. In essence, Pulaski should reject the bonus as that would amount to doing the right thing. The second course of action for Pulaski is to notify the accountant of the erroneous labeling of the overhead expense and its inclusion in the bonus calculations. In this regard, Pulaski would assume that the accountant did not label the returned products as an overhead expense deliberately. By notifying the accountant, Pulaski will give him/her the opportunity to make the necessary corrections and prevent losses for the organization. Additional courses of action that Pulaski should take will depend on the accountant’s response to her notification.

Chapter 14 – Ethical Dilemma

Today’s business world is characterized by biases such as motivated reasoning and surrogation (Warren, Jones & Tayler, 2018). These biases have become prevalent in the business world because managers are usually compensated and assessed based on performance measures like profit margin and production costs. One of the ethical issues surrounding biases like motivated reasoning and surrogation is unethical accounting. When managers overvalue or discount evidence in order to generate a favorable outcome for themselves, they engage in unethical accounting practices. Such biases generate issues of unethical accounting because managers tend to use them to enhance their performance ratings or provide misleading information regarding their profit margins. The second ethical issue in this scenario is corruption, which relates to bribery. As described in the situation, some restaurant managers offer discounts as bribes for favorable reviews in attempts to increase customer satisfaction ratings. Such discounts are bribes and represent corrupt practices.

Cognitive biases of surrogation and motivated reasoning affect the expediency of a balanced scorecard by creating subjective performance ratings. For the balanced scorecard to be useful, performance assessment measures should be objective. Therefore, these biases affect the managers’ objective thinking as they seek favorable results. The pursuit of favorable outcomes at the expense of objective thinking during performance assessment affects the usefulness of the balanced scorecard. In this regard, avoiding the biases of motivated reasoning and surrogation is critical toward ensuring ethical business practices. Some of the ways to avoid these biases include reliance on accepted standards of managerial accounting and ethical behavior. Additionally, these biases can be avoided by involving other relevant and trustworthy stakeholders in the managerial accounting and performance evaluation process.