Why and how might managers manipulate their monthly estimates of percentage of completion and level of inventory? Accounting Ethics

  • Managers might alter monthly estimates regarding the percentage of complete and inventory level.
  • McNall’s first reaction is to contact each plant controller and discuss the problem raised by the anonymous communications, is that a good idea
  • What ethical responsibility does each controller have if they report to McNall?
  • McNall might be able to determine if data from particular plants is being altered.

Accounting Ethics

Competition is driven to the extreme when there is a zero sum game. Some players will go to any length to win. In Scott Quarry’s case, the plant manager’s livelihood is determined by how well they can outperform each other. To compete,  some managers are predisposed to use ulterior means to win, as winning means better pay and status within the company. Either they can understate the work completed, misrepresent total inventory or do both. The managers can misrepresent the amount of work done and the resulting inventory by understating a mine’s capacity to make the amount of work done seem more. 

McNail should be careful not to approach plant controllers without first investigating the issue. To eliminate the chance of anonymous whistleblowing, he must verify that fraud is being perpetrated. The data provided by Scott Quarry will help him determine the most effective course of action in order to correct the damages and avoid a repeat. If he chooses to contact the controllers regarding the claims raised, they will be bound by the codes of integrity and objectivity as well as professional competence to provide correct data to Scott Quarry. (International Federation of Accountants 2010, p. 15 ).

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