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This section consists of 13 comments Earnings Management scenarios to measure the ethical level. You just need to rate each scenario from:
1= ethical
2= questionable
3= moderate
4= serious
5= totally unethical
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5
1. The division’s headquarters building was scheduled to be painted in 1992. But since profit performance was way ahead of budget in 1991, the GM decided to have the work done in1991. Amount: RM150, 000.
This information applies to the following two questions. The GM ordered division employees to defer all discretionary expenditures (e.g., postpone employee travel, advertising hiring maintenance) into the next accounting period, so the division could make its budgeted profit targets. Expected amount of deferrals: RM 150, 000.
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2. The expenditures were postponed from February and March until April in order to meet the first quarter target.
3. The expenditures were postponed from November and December until January in order to meet the annual target.
4. On December 15, a clerk ordered RM 3, 000 of the office supplies, and the supplies were delivered on December 29. This order was a mistake because the GM had ordered that no discretionary expenses be incurred for the remainder of the fiscal year, and the supplies were not urgently needed. The company’s accounting policy manual states that office supplies are to be recorded as an expense when delivered. The GM asked the accounting department not to record the invoice until February.
This information applies to the following three questions. In September, the GM realized the division would need strong performance in the fourth quarter to reach its budget targets.
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5. The GM decided to implement a sales program offering liberal payment terms to pull some sales that would normally occur next year into the current year; customers accepting delivery in the fourth quarter would not have to pay the invoice for 120 days.
6. The GM ordered manufacturing to work overtime in December so that everything possible could be shipped by the end of the year.
7. The GM sold some excess assets and realized a profit of RM 40, 000.
This information applies to the following two questions. At the beginning of December 1991, the GM realized the division would exceed its budgeted profit targets for the year.
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8. The GM ordered the division controller to prepay some expenses (e.g. hotel rooms, exhibit expense) for a major trade show to be held in March 1992 and to book them as 1991 expenses. Amount: RM 60, 000.
9. The GM ordered the division controller to write down the inventory due to obsolescence (i.e., reduce its asset value and record a corresponding loss in the income statement). By taking a pessimistic view of future market prospects, the controller was able to identify RM 700, 000 worth of finished goods that conservative accounting would say should be written off even though the GM was fairly confident the inventory would still be sold at a later date at close to full price.
This information applies to the following two questions. The next year, the division sold 70% of the written-off inventory, and a customer had indicated some interest in buying the rest of that inventory the following year. The GM ordered the division controller to write the inventory back up to full cost. This would involve a RM 210, 000 increase in the inventory asset value (which had been previously written down due to obsolescence) and a corresponding increase in net income. The GM’s motivation for recapturing the profit was:
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10. To be able to continue working on some important product development projects that might have been delayed due to budget constraints.
11. To make budgeted profit targets.
This information applies to the following two questions. In November 1991, the division was straining to meet budget. The GM called the consulting firm that was doing some work for the division and asked that the firm do not send an invoice until next year. The firm agreed. Estimated work done but not invoiced:
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12. RM 30, 000
13. RM 500, 000
In this section the questions are adopted and modified from the Ethics Position Questionnaire (EPQ)by Forsyth (1980). The questions are posed to measure personal moral philosophy. You just need to rate each scenario from:
1= strogly agree
2= agree
3= slightly agree
4= slightly disagree
5= disagree
6= strogly disagree
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1. A person should make certain that their actions never intentionally harm another even to a small degree.
2. The existence of potential harm to others is always wrong, irrespective of the benefits to be gained.
3. One should not perform an action which might in any way threaten the dignity and welfare of another individual.
4. It is never necessary to sacrifice the welfare of others.
5. Moral standards should be seen as being individualistic; what one person considers to be moral maybe judged to be immoral by another person.
6. Questions of what is ethical for everyone can never be resolved since what is moral or immoral is up to the individual.
7. No rule concerning lying can be formulated; whether a lie is permissible or not permissible totally depends upon the situation.
8. Whether a lie is judged to be moral or immoral depends upon the circumstances surrounding the action.
In this section the questions are adopted and modified from the questionnaire on Perceived Role of Ethics and Social Responsibility (PRESOR)by Singhakpadi(1996). The questions are posed to measure personal corporate social responsibility. You just need to rate each scenario from:
1= strogly agree
2= agree
3= slightly agree
4= slightly disagree
5= disagree
6= strogly disagree
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1. The most important concern for a firm is to make profit, even if it means bending or breaking the rules.
2. The ethics and social responsibility of a firm is essential to its long term profitability.
3. The overall effectiveness of a business can be determined to a great extent by the degree to which it is ethical and socially responsibility.
4. To remain competitive in a global environment, business firms will have to disregard ethics and social responsibility.
5. Social responsibility and profitability can be compatible.
6. Business ethics and social responsibility are critical to the survival of a business enterprise.
7. If survival of a business enterprise is at stake, then you must forget about ethics and social responsibility.
8. Efficiency is much more important to a firm than whether or not the firm is seen as ethical or socially responsible.
9. If the stock holders are unhappy, nothing else matters.
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