Running head: ETHICS IN BUSINESS

Ethics in Business David A. Sanchez Grand Canyon University

Ethics in Business PROBLEM 14 Ethics and the Manager [LO3] Richmond, Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodeling of its stores to attract a more upscale clientele. Before finalizing these plans, two stores were remodeled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. While completing the financial reports, Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses.
1.

According to the IMAs Statement of Ethical Professional Practice, would it be ethical for Perlman not to report the inventory as obsolete? No, will not be ethical for Perlman in not reporting the inventory as obsolete. She will violate the IMAs Statement of Ethical Professional Practice as follows:

Competence Perform duties in accordance with relevant technical standards. Generally accepted accounting principles (GAAP) require the write-down of obsolete inventory. Prepare decision support information that is accurate.

Integrity Mitigate actual conflicts of interest and avoid apparent conflicts of interest. Refrain from engaging in any conduct that would prejudice carrying out duties ethically. Abstain from activities that would discredit the profession.

Members of the management team, of which Perlman is a part, are responsible for both operations and recording the results of operations. Because the team will benefit from a bonus, increasing earnings by ignoring the obsolete inventory is clearly a conflict of interest. Furthermore, such behavior is a discredit to the profession. Credibility Communicate information fairly and objectively. Disclose all relevant information. Hiding the obsolete inventory impairs the objectivity and relevance of financial statements ( The McGraw-Hill Companies, Inc., Solutions Manual chapter 1).

2. Would it be easy for Perlman to take the ethical action in this situation? No, it would not be easy for her to take the ethical action due to by doing this will affect the compensation that she will earn and it will put her in a bad situation with her colleagues since they want more money rather than doing the right thing.

PROBLEM 17 Ethics in Business [LO3] Consumers and attorney generals in more than 40 states accused a prominent nationwide chain of auto repair shops of misleading customers and selling them unnecessary parts and services, from brake jobs to front-end alignments. Lynn Sharpe Paine reported the situation as follows in Managing for Organizational Integrity, Harvard Business Review, Volume 72 Issue 3: In the face of declining revenues, shrinking market share, and an increasingly competitive market . . . management attempted to spur performance of its auto centers. . . . The automotive service advisers were given product-specific sales quotassell so many springs, shock absorbers, alignments, or brake jobs per shiftand paid a commission based on sales. . . . [Failure to meet quotas could lead to a transfer or a reduction in work hours. Some employees spoke of the pressure, pressure, pressure to bring in sales. This pressure-cooker atmosphere created conditions under which employees felt that the only way to satisfy top management was by selling products and services to customers that they didnt really need. Suppose all automotive repair businesses routinely followed the practice of attempting to sell customers unnecessary parts and services. Required: 1. How would this behavior affect customers? How might customers attempt to protect themselves against this behavior? This behavior will affect the costumers trust in other companies that are not doing this. Now they will hesitate to go to an auto shop because they might think that they are going to be charge for other stuff that they really not need it. The customers will try to fix their cars by themselves or taking their vehicles to somebody that they know that posses some basic skills of mechanic

work. By doing so, they might get even in more troubles, probably due to the lack of experience of the person that will be fixing the vehicle plus there would not any guarantee on the job. 2. How would this behavior probably affect profits and employment in the automotive service industry? In result of this behavior the profits and employment in the automotive service industry will be affected drastically because less customers will trust the industry and of course more hard workers mechanics might lose their jobs due to not be able to get or find enough customers.

Reference:
The McGraw-Hill Companies, Inc., Solutions Manual chapter 1 www.cob.sjsu.edu/buck_c/Fall09/Bus21/Bus21ch1.doc