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Ethics in Business

Ethics in Business

Jeff Fox is the controller of a cooperation whose stock is not listed on a national stock exchange. The company has just received a patent on a product that is expected to yield substantial profits in a year or two. However, the company is presently experiencing financial difficulties; it is on the verge of defaulting on a note held by its bank because of inadequate working capital.

At the end of the fiscal year, the president of the company instructed Fox to not record several invoices as accounts payable. Initially Fox objected since the invoice represented bona fide liabilities. However, the president insisted that the invoices not be recorded until after the end of the year, at that time it was expected that additional financing could be obtained. After several strong objections that were expressed to both the president and other members of senior management, Fox finally complied with the president's instructions.

1. Did Fox act in an ethical manner? Explain.

2. If the new product fails to yield substantial profits and the company becomes insolvent, can Fox's actions be justified by the fact that he was following orders from a superior? Explain.

Solution Preview

1. No, Fox did not act in an ethical manner. In complying with the president's instructions to omit liabilities from the company's financial statements he was in direct violation of the IMA's Statement of Ethical Professional Practice. He violated both the "Integrity" and ...

Solution Summary

There are times when Controllers and Managers are given instructions that violate both the "Integrity" and "Credibility" guidelines of ethical conduct, creating a dilemma for managers. The Securities and Exchange Commission (SEC) has consistently ruled on this issue, making it clear and explaining the options available for managers.

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