You Are the New Managerial Accountant for a Company That

question 53

Essay

You are the new managerial accountant for a company that awards its managers with a year-end bonus based on exceeding the target operating profit presented in the yearly budget proposal.The controller tells you that she believes the company will likely have operating profit of $120 million in 2012,but asks you to prepare a proposal with projected operating profit of $100 million.She notes that "after all,it is only an estimate,and it would be a shame if the managers missed their bonus again this year after all their hard work." You realize that the only way to project operating profit of $100 million is to make unrealistically low sales estimates and unrealistically high cost estimates.
Using the IMA's Statement of Ethical Professional Practice,what guidelines are violated and how should you handle this situation?

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Definitions:

Monetary Unit Assumption

An accounting principle that assumes all transactions and financial statements are recorded in a single currency.

Cost Principle

An accounting principle that states all goods and services purchased by a business should be recorded at their cost price, rather than their current market value.

Economic Data

Economic data refers to quantitative information concerning the economy, which includes statistics on inflation, employment, GDP, and market transactions.

Yen

The official currency of Japan, represented by the symbol ¥.