Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 22

Responsibility for Ethical Action

Dewi Hartono is an assistant controller at Giant Engineering, which contracts with the Defense Department to build and maintain roads on military bases. Dewi recently determined that the company was including the direct costs of work for private clients in overhead costs, some of which are charged to the government. She also discovered that several members of management appeared to be involved in altering accounting invoices to accomplish this. She was unable to determine, however, whether her superior, the controller, was involved. Dewi considered three possible courses of action. She could discuss the matter with the controller, anonymously release the information to the local newspaper, or discuss the situation with an outside member of the board of directors whom she knows personally.

Required

a.Does Dewi have an ethical responsibility to take a course of action?

b.Of the three possible courses of action, which are appropriate and which are inappropriate?

Step 1 of 3

Accounting systems

Purpose of creating accounting information system is to provide information for decision making of accounting users. Users can be classified as primary users like investors, government, creditors etc. and secondary users like internal including managers or employees. Accounting systems are also classified as financial and costing accounting system also differentiate between the users like primary and secondary ones.

Cost accounting

This system is designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.

Code of ethics

Cost accounting system may be misused to cheat employees, investors, customers etc. Institute of management accountant has defined code of ethics that must be followed to ensure correct reporting and safeguard the interest of employees, investors and customers. Responsibilities and steps to be taken by an accountant are clearly stated and all such must be reported on immediate basis.