Ethics Case Study ACCT 6320 Accounting and Financial Statement Analysis

Summary
Ethics Case Study
ACCT 6320 Accounting and Financial Statement Analysis
This assignment requires you to read, analyze, and state your observations of and conclusion(s)
based on a fact situation presented in an assigned case study (page 2 or 3).
Due Date: Tuesday, April 8 by 11:59pm
Introduction
Situations may arise in an individual’s personal or professional life that require the individual to
assess the situation and determine the proper or appropriate course of action by the individual. At
times, the situation(s) may pose a potential ethical dilemma.
Deliverable
Using the concepts embodied in the Model for Ethical Decision-Making and the Tucker Five
Question Model perform an analysis of the assigned short case study and write an up to 6-page
paper (double-spaced, New Time Roman 12 font, one-inch margins). The paper should fully
incorporate the concepts of the models as presented in the Requirements (see pages 3, 4, 5, 6, 7,
and 9) as well as document any assumptions made. Your paper should include a cover page,
proper citations, and a reference page(s). The cover page and reference page do not count against
the 6-page limit on this paper.
As a professional presentation, your paper should include a cover page providing title and
appropriate identifiers, appropriate citations in the paper, and a reference page(s). Your writing
should be in grammatically correct full sentences with proper spelling and punctuation. Do not
simply copy the information from the case study or other sources you may use. Provide your
own commentary supporting your analysis of the ethical situation presented. Use clear, concise,
professional writing that is easy to read and comprehend.
Grading1
The assignment will be graded based on the quality and appropriateness of the form of analysis
of the case study, the linkage of the analysis to the stated conclusion (i.e., does the analysis
support the conclusion(s) reached), logic applied, and writing quality (i.e., use of language,
spelling, style elements). See Rubric for Ethical Awareness (page 7) for additional content and
quality considerations.
Assignment points are based on the presentation content (50%) and analysis (50%) which are
weighted equally. However, the instructor will also consider strengths and deficiencies in the
presentation content and analysis (i.e., content and analysis are linked) in the determination of
points. If your paper is missing the cover page or reference page(s) you will have a 2.5 percent of
the assignment points deducted for each missing item.
Note: You must complete and submit the Case Study Pre Evaluation and Evaluation Form
to receive credit for this assignment. A link to complete these forms will be provided to you.
1
The Grading section describes the rubric being used to evaluate the overall assignment. While grading is focused
on the presentation of content and style elements, it also considers deficiencies following assignment instructions
and formatting.
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Required Reading
1. Financial & Managerial Accounting for Decision Makers (textbook).
• Contingent Liabilities, page 9-7.
• Ethics in adjusting entries, pages 3-18,19
• Ethics in budgeting, page 21-24
• Ethics in managerial accounting, pages 13-18, 20
• Codes of ethics/conduct, pages 13-19, 20
• Corporate governance, page 13-21
2. Contingencies Concepts (see Appendix A).
Requirements
1. Prepare a professional presentation (paper) that summarizes your analyses and conclusions
following the Deliverable instructions.
2. Use the concepts embodied in the models shown below as the basis of your analysis and
decision-making process in responding to these case study requirements.
Model for Ethical Decision-Making
Ethical Decision-Making Model Steps
Activities/Actions
1.
2.
3.
4.
5.
6.
7.
What are the facts of the case?
What are the ethical issues in the case?
What are the norms, principles, and
value related to the case?
What are the alternative courses of
action?
What is the best course of action
consistent with the norms, principles,
and values identified in Step 3?
What are the consequences of each
possible course of action?
What is the decision?
Identify relevant facts related to the issue.
Determine the ethical issues involved.
Determine the norms, principles, and values related
to the matter of the question.
What are the established internal procedures, if any.
Identify possible alternative courses of action based
on the norms, fundamental principles, and value
issues.
Identify the “best” course of action consistent with
(a) the norms, principles, and values and (b)
considering established internal procedures, if any.
Weigh the consequences of each alternative course of
action consistent with the norms, fundamental
principles, and values.
Choose the “best” course of action consistent with
the norms, principles, and values and considering
established internal procedures, if any.
Justify your selected course of action.
Source: Based on AAA Model for Ethical Decision-Making Model Steps and
https://www.accaglobal.com/us/en/student/exam-support-resources/professional-exams-study
resources/strategic-business-leader/technical-articles/ethical-decision-making.html.
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Tucker’s Five Question Model
Questions
Considerations
1. Is it profitable?
2. Is it legal?
3. Is it fair?
4. Is it right?
5. Is it sustainable or
environmentally sound?
This is the first factor for consideration by the business. Its
position as the first issue is due to the fact that the company is
owned by shareholders and their primary reason for ownership
is usually one of profit making. Profits are generated through
the competitive advantage of producing a green refrigerator
wanted by those in the marketplace.
This is a general statement regarding the legality of doing
something. This is very relevant since there are many instances
where products failing health and safety are manufactured and
fed into the marketplace for profit without consideration of
impact.
Fairness suggests an element of equality among stakeholders.
This may not feature as a decision-making issue although one
possible interpretation is the fairness of a communist company
driven into receivership by the impact of the free market,
returning to dominate the same market through an innovative
product. This fairness would be tinged with natural justice or
even revenge as a fair motivational influence.
Fairness and whether an action is right seem similar. Right
relates to a moral standard beyond the legal standard. It would
not be right to lie about the ability of the fridge to reduce
emissions if it simply did not. Although this would be very
profitable, may be undetectable by law, fair in the sense of
protecting jobs, it is not right in a moral sense.
Meeting sustainability of the company or environmental needs
is a basis for competitive advantage.
Source: https://www.accaglobal.com/us/en/student/exam-support-resources/professional-exams
study-resources/strategic-business-leader/technical-articles/ethical-decision-making.html.
3. Consider the content of all of the documents provided by the instructor in your analysis.
4. Any other material accessed through your research.
5. Document any assumptions you make based on the case fact situation or other knowledge.
6. Complete and submit the Case Study Evaluation Form to receive credit for this assignment.
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The Case Study: Contingencies and Internal Conflicts
7.
AR Manufacturing (ARM) is a manufacturing company with approximately 2,000 employees
which is publicly-traded on NASDAQ stock exchange. With annual revenue of $ 700 million
and a public float of approximately $400 million, ARM is classified as an accelerated filer by the
SEC. ARM is required to file 10-Qs 40 days following its fiscal quarter end and its Form 10-K
75 days following its fiscal year end. As a public registrant, ARM is subject to the requirements
of the Sarbanes-Oxley Act of 2002 (SOX).
As a summer intern, you have enjoyed the opportunity to work at ARM but look forward to
returning to The University of Texas Rio Grande Valley to complete the MBA program. During
the internship, you initially worked in the Operations group where you learned about ARM’s
operations and the accounting processes and the importance of contractual terms and conditions.
In the second half of the internship, you were moved to the financial reporting group and have
gained significant exposure to and understanding of the company’s accounting policies and the
GAAP on which the company’s accounting and reporting is based. The financial reporting group
has a number of people who are CPAs including the Director. The Directors of both the
Operations Accounting and Financial Reporting have communicated their appreciation of your
work and that you were the type of person they would like to hire when you graduate.
Your time at ARM is coming to an end in another week, and you have become aware of an
accounting and disclosure issue. You know from your undergraduate prior coursework class that
accounting for contingencies can be complex and require consideration of outcome probabilities
to determine recognition or disclosure obligations. The company’s fiscal year end (July 31,
202X) ended two days ago and in the review of potential disclosures related to operations, you
have discovered that a company lawyer has argued that disclosure of a potential contingency
issue is almost certain to result in litigation against ARM. When you ask your former manager in
Operations Accounting about the situation, she tells you an environmental issue exists and no
analysis of probabilities of outcomes has been performed because ARM’s lawyers decided to
defer any accounting analysis until they can assess legal risk which may not occur until after the
annual report is filed. You had also heard in Financial Reporting that ARM management have
been very focused on meeting current year targets and corporate social responsibility goals. The
Reporting Manager said Management’s drivers were concerns about meeting investment
analysts’ revenue and earnings forecasts for the fiscal year, avoiding negative press about
company operations, and not meeting performance goals that could impact bonuses for all of
ARM’s employees.
You really would like to have an opportunity to join ARM after graduation and know having the
support of the Operations Accounting and Financial Reporting Directors would be key to
achieving this goal. As an intern, you are a temporary employee and subject to ARM’s code of
conduct. However, you are concerned, if you raise the accounting and disclosure issue, it could
negatively impact the relationships you developed during your internship. You also know the
auditors will ask about exposures and contingencies as part of their audit inquiries and believe
the issue will most likely be discovered during this process. Given the potential accounting and
disclosure issue you have become aware of, what are you going to do?
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INTRODUCTION & PURPOSE
AR Manufacturing
Code of Ethics
Effective January 1, 2021
This Code of Ethics (the “Code”) sets forth the standards of business conduct and ethics for all
employees, contractors, and agents, including officers (collectively, “employees”), and
directors, of AR Manufacturing and its subsidiaries (collectively, “ARM”). The principles
contained in this Code establish the framework and the expectations for conduct and ethics of
ARM’s business based on honesty and integrity. This Code pertains to all employees and
directors in the performance of their duties and is to be applied in conjunction with other ARM
policies that relate to an employee’s or director’s responsibilities.
Responsibilities
Each employee is responsible for:
• Reading and understanding the Code
• Acknowledging in writing the employee’s agreement to abide by the Code and of
having abided by the Code
• Seeking guidance from a supervisor or officer of ARM for: o
Clarification of any aspect of the Code, or
o
Questions or doubts regarding any situation that violates or appears to violate
the Code
Employees with supervisory responsibilities have further responsibility to:
• Ensure that those under their direction are aware of and understand responsibilities
under the Code
• Foster an environment that encourages employees to seek guidance regarding any
questions regarding a violation or the appearance of a violation of the Code
• Report to an officer any circumstance or situation that violates or appears to violate the
Code
Adherence to ARM policies, including the Code, is a condition of employment. Failure by an
employee to comply with the Code can lead to disciplinary action and dismissal.
If an employee has any concerns regarding a possible violation of the Code, the steps the
employee should take are outlined in Section III, Compliance Requirements. Employees with
any doubts regarding specific circumstances or regarding any questionable conduct or unethical
behavior are encouraged to talk to a supervisor or any officer of ARM. ARM does not permit
retaliation for a report made by an employee in good faith of a possible violation of ARM policy.
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I.
PRINCIPLES OF BUSINESS CONDUCT
Compliance with Laws and Regulations
It is the responsibility of each employee to be familiar with the laws and regulations that relate
to their business responsibilities and to comply with them. In addition to laws and regulations
applying to an employee’s specific business responsibilities, each employee should also be
aware of the following:
Antitrust Compliance. ARM and its employees will avoid any conduct that violates, or that
might even appear to violate, the antitrust laws, including those that forbid any kind of
understanding or agreement between competitors regarding prices, terms of sale, division of
markets, allocation of customers or any other activity that restrains competition, whether by
sellers or purchasers. Criminal and civil penalties may be imposed both on ARM and individual
employees for violation of antitrust laws.
Unlawful Payments. Employees are prohibited from paying any bribe, kick-back or other
similar unlawful payment to any public official, or government, or other individual, regardless
of nationality, to secure any concession, contract or improper advantage for ARM or the
employee. Pursuant to ARM Accounting Policies, any payment by or on behalf of ARM, for
any purpose, can be made only on the basis of adequate supporting documentation and can be
made only for the purpose described by the supporting documentation.
Agreements with ARM representatives and partners who engage in activities on behalf of, or
together with, ARM, that may involve governments or government officials, must be in writing.
Any questions or doubts about the propriety of a proposed course of action should be discussed
with the General Counsel before taking the action in question.
Insider Trading
The Insider Trading Policy (this “Policy”) of ARM provides guidelines to employees, officers
and directors of ARM with respect to transactions in the securities of ARM. This Policy applies
to all officers of ARM, all members of ARM’s Board of Directors, and all employees of ARM
who receive or are aware of Material Nonpublic Information (as defined below) regarding ARM.
As used herein, the term ”employee” includes all employees of ARM and any other subsidiary
of ARM providing services to ARM. This group of people, members of their immediate families,
and members of their households are sometimes referred to in this Policy as “Insiders.” This
Policy also applies to any person who receives Material Nonpublic Information from any Insider.
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Business Ethics
Corporate Records
Care and honesty must be exercised in the preparation of all ARM business records,
accounts and reports to government agencies and others. All ARM funds, assets and
liabilities must be recorded in accordance with appropriate accounting procedures. All
accounting and internal control procedures must be followed at all times. False or
misleading entries in ARM’s records are unlawful and are not permitted. No director,
officer or employee, at any level of responsibility, is authorized to depart from this
requirement or to condone a departure by anyone else.
Certain records must be retained for a period of time to comply with legally required
retention periods. Each operating unit or location must make its own initial determination
of how long its records need to be retained for effective operations (in addition to
complying with any legally required retention periods).
Disclosure
The Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer,
and Controller shall provide, as legally or contractually required, full, fair, accurate, timely
and understandable disclosure in reports and documents filed with or submitted to
regulatory authorities and governmental agencies, and in other communications made by
ARM, to its investors and its lenders.
Confidential Information
No ARM employee is to disclose any confidential information about ARM or any other
company, entity or individual, including customers and suppliers, without authorization.
This applies both during employment and afterwards. Confidential information consists of
various kinds of information including, but not limited to, internal, confidential, proprietary
or secret information related to ARM business or dealings with others. This information
must not be used in any way other than as required in performing employment duties. Any
documents, papers or other records that contain trade secrets or proprietary information are
the property of ARM.
Additionally, selected human resource and personnel information must be kept strictly
confidential and used only for the purpose for which it is intended.
Fair Dealing
ARM business will be conducted with honesty, integrity, and fairness in all dealings with
customers, suppliers, competitors, and employees. No employee or director will take unfair
advantage of anyone through manipulation, concealment, abuse of privileged information,
misrepresentation of material facts, or any other unfair-dealing practice.
Equally, we expect all of our suppliers and service providers to adhere to the principles of
conduct and ethics set forth in this Code when dealing with ARM or its employees. A copy
of this Code requiring acknowledgement by our suppliers and service providers will be
incorporated in all business agreements and contract with suppliers and service providers.
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Conflict of Interest
Employees and directors must avoid engaging in activities that create or even appear to
create a conflict of interest. A “conflict of interest” occurs when an individual’s private
interest interferes or appears to interfere, in any way, with the interest of ARM.
Employees and directors must avoid the following activities:
• Use of ARM equipment, personnel or facilities for personal gain
• Situations where an individual or any individual’s family member benefits
personally from transactions involving ARM
• Loans from customers or from individuals or firms with which ARM does business
• Gift and gratuities received from, or given to, customers and suppliers that might
influence or appear to influence the individual’s conduct in representing ARM
• Performing work or consulting for or serving as a board member of any
organization that competes with ARM or which does business with ARM, without
appropriate approval from ARM Board
Corporate Opportunities
Employees are prohibited from appropriating ARM opportunities by (a) taking
opportunities that are discovered through the use of company property, information or
position for personal gain; (b) using company property, information or position for personal
gain; and (c) competing with the company. Employees owe a duty to ARM to advance its
legitimate interests when the opportunity to do so arises.
Governmental Affairs
No political contributions for any candidate for U.S. federal, state or local office may be
made for, or on behalf of, ARM by any employee. No ARM employee may receive any
direct or indirect reimbursement or offsetting refund of any nature whatsoever with respect
to political contributions made by him or her in any form. In addition to the restrictions on
political contributions, it is important to recognize that all employees must abide by the
laws pertaining to contact with governmental officials (including lobbying and issue
registration) in the United States or any other jurisdiction where the company has business
interests.
Human Resources
Employment Related Matters
ARM prohibits discrimination against any employee or applicant for employment because
of race, color, religion, ethnic or national origin, gender, sexual orientation, age, disability
or veteran status. This applies to recruitment, compensation, training, promotion and other
employment practices. All personnel actions and company-sponsored programs shall be
administered on a non-discriminatory basis while ensuring compliance with labor law in
each jurisdiction where ARM operates.
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Harassment
ARM prohibits any deliberate discrimination or harassment, in word or action, against a fellow
employee or applicant for employment on the basis of race, gender, sexual preference, national
origin, religion, age, physical or mental disability, or veteran’s status.
Harassment complaints will be investigated and appropriate action will be taken in accordance
with the results of that investigation. Any employee found to be responsible for harassment will
be subject to appropriate disciplinary action, up to and including termination of employment.
Health, Safety and Environment (HSE)
Safe Workplace
Each employee has responsibility for maintaining a safe and healthy workplace for all
employees by following safety and health rules and practices and reporting accidents, injuries
and unsafe equipment, practices or conditions. Employees are expected to comply fully with
company policies and to adhere, at a minimum, to the applicable HSE legal requirements, facility
rules, and company standards based on documentation maintained at their worksites.
Threats of Violence
Violence and threats of violence are unacceptable and should be reported immediately to an
employee’s supervisor or any officer of ARM. In the event of an imminent threat, employees
should first contact local authorities. Every report of violence or a threat of violence will be
investigated and appropriate action will be taken. Employees who engage in violence or threaten
violence are subject to disciplinary action.
Drugs & Alcohol
ARM requires a drug and alcohol impairment-free working environment. This standard applies
to all employees while they are on ARM property or performing their duties off ARM property.
Employees who report for duty with illegal drugs in their system or report with levels of alcohol
or other chemical substances that could impair performance are subject to disciplinary action.
Employees who, while on duty or on company property, distribute, sell, buy, manufacture,
dispense, possess or use illegal drugs are subject to discharge.
II.
COMPLIANCE REQUIREMENTS
All employees, officers and directors must work together to ensure prompt consistent action
against violations of this Code. The following steps are a framework to assist an employee in
determining how to proceed if a situation arises in which application of the Code is not clear.
• Consider all relevant information. To reach the right solution, try to assemble all
relevant information which is available for your consideration.
• Focus on the specific issue or question. If something seems unethical or improper, you
should seek advice from supervisors if you are uncertain.
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• Identify the parties involved. Often, there is shared responsibility. Are other employees
informed? It may help to involve others to discuss the issue or question.
• Discuss the issue of question with a supervisor. In many cases, supervisors will be
more knowledgeable about the question or issue and will appreciate being brought into
the decision process. This is basic guidance in all situations. Remember that supervisors
are responsible for solving problems and ensuring compliance with the Code.
• Seek help from ARM resources. If a supervisor is not available, or in the rare case
where it is not appropriate to discuss the issue with a supervisor, then employee should call
the ARM Hot Line to discuss the issue.
• Report Code violations in confidence and without fear of retaliation. If the situation
so requires, a reporting employee’s anonymity will be protected. ARM does not permit
retaliation of any kind against an employee for good faith reports of Code violations.
• Always ask first. When unsure of what to do in any situation, employees should seek
guidance and ask questions before the action in question is taken.
EMPLOYEE ACKNOWLEDGEMENT
I have read the Code of Ethics (the “Code”) of ARMAR Manufacturing and its subsidiaries. I have
had an opportunity to ask questions of my supervisor regarding the Code and all of my questions
have been answered.
I acknowledge and understand all provisions of the Code and that any unauthorized or prohibited
activity or violation of the Code is subject to disciplinary action, up to and including termination
of employment.
Date
Signature
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Appendix A: Contingencies Concepts
FASB ASC Topic 450, Contingencies, uses the term contingency to identify “an existing
condition, situation, or set of circumstances involving uncertainty as to a possible gain (gain
contingency) or loss (loss contingency) to an entity that will ultimately be resolved when one or
more future events occur of fail to. occur (FASB, 2020a).” The terms probable, reasonably
possible, and remote as defined under ASC 450-20-20 are used to assess the likelihood of a
future event or occurrence related to a potential asset or liability (FASB, 2020a).
• Probable. The future event or events are likely to occur (FASB, 2020a; FASB, 2020c).
• Reasonably Possible. The chance of the future event or events occurring is more than remote
but less than likely (FASB, 2020a; FASB, 2020c).
• Remote. The chance of the future event or events occurring is slight (FASB, 2020a; FASB,
2020c).
ASC 450-20-20 defines “probable” as “the future event or events are likely to occur,” which is
generally considered a 75% threshold (PwC, 2019).
A loss contingency is accrued when both of the following conditions are met:
• “Information available before the financial statements are issued or available to be issued . . .
indicates that it is probable an asset had been impaired or a liability had been incurred at the
date of the financial statement” ASC 450-25-2a
• “The amount of the loss can be reasonably estimated.” ASC450-25-2b
Under ASC 450-20-50-5, if a loss contingency cannot be reasonably estimated but it is probable
or reasonably possible that “an asset had been impaired or a liability had been incurred at the
date of the financial statement,” it should be disclosed (FASB, 2020a).
On the other hand, under ASC 450-30-25-1, a gain contingency must be realized (i.e., actually
occur) before revenue is recognized in the financial statements (FASB, 2020a).
Reasonable Certainty. If deterministic methods are used, reasonable certainty means a high
degree of confidence that the quantities will be recovered. If probabilistic methods are used,
there should be at least a 90 percent probability that the quantities actually recovered will equal
or exceed the estimate. A high degree of confidence exists if the quantity is much more likely to
be achieved than not, and , as changes due to increased availability of geoscience (geological,
geophysical, and geochemical), engineering, and economic data are made to estimated ultimate
recovery with time, reasonably certain estimated ultimate recovery is much more likely to
increase or remain constant than to decrease (FASB, 2020b; FASB, 2020c). ASC 932-235-20.
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Deterministic Estimate. The method of estimating reserves or resources is called deterministic
when a single value for each parameter (from geoscience, engineering, or economic data) the
reserves calculation is used in the reserves estimation procedure (FASB, 2020b).
Probabilistic Estimate. The method of estimation of reserves or resources is called probabilistic
when a full range of values that could reasonably occur for each unknown parameter (from
geoscience and engineering data) is used to generate a full range of possible outcomes and their
associated probabilities of occurrence, (FASB, 2020b).
Kent set forth the community’s findings in such a way as to make clear to the reader what is
certain knowledge and what is reasoned judgment, and within this large realm of judgment what
varying degrees of certitude lie behind each key judgment (Central Intelligence Agency, 2002).”
The following table presents Kent’s Word of Estimative Probability (Central Intelligence
Agency, 2002).
Estimated Probability
Percent
Range
Certain
Almost Certain
Probable
Changes are about
Even
Probably Not
Almost Certainly Not
Impossible
100
93
75
50
30
7
0
+/- 0%
+/- 6%
+/- 12%
+/- 10%
+/- 10%
+/- 5%
+/- 0%
Unfortunately, the term probable, in particular, has been interpreted in different ways by
practicing accountants. In a survey of accountants average values and ranges for the three
terms were: probable, average 70 percent, range 40 – 80 percent; reasonably possible, 60 percent,
range 40 – 80 percent; remote: 10 percent, range 0 – 25 percent (Boritz, 1990 p. 24). These
verbal expressions apparently mean different things to different people and invite inconsistency
in practice. http://accounting-financial-tax.com/2009/11/accounting-standard-for-contingencies
an-overview/
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RUBRIC FOR ETHICAL AWARENESS

Ethics Case Study ACCT 6320 Accounting and Financial Statement Analysis

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