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Professional Ethics in Budgeting

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Topic: Professional Ethics in Budgeting

Subtopic: Ethics has recently become a hot topic in the business world. Ethical dilemmas arise on regular basis. Use external resources to find an example of ethical dilemmas or challenges regarding budgeting.

Feel free to expand or focus on a particular issue dealing with the ethical challenges related to the practice of budgeting.

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Professional Ethics in Budgeting

Lehman Brothers was an investment banking firm found in 1850 in Montgomery, Alabama (Tong & Bel, 2008). Lehman Brothers is the largest bankruptcy filing in terms of holding $639 billion of assets. In perspective, the next biggest bankruptcy is WorldCom with $126 billion and Enron with $81 billion (Tong & Bel) Lehman Brothers cannot blame failures on the "credit crunch" because longevity has shown that it could adapt to differing situations throughout the financial crisis of the Civil War and the Great Depression. On September 15th, 2008, Lehman Brothers had to file for bankruptcy because of poor business and accounting practices (Tong & Bel). The importance is for business executives to learn and understand the failures so others do not repeat it in the future. In examination of Lehman Brothers budgeting, their failures lie in behavior that was reckless and organizational deviant and counterproductive to furthering their agenda for the future.

Although many can debate the legalities and who claims more responsibility in the sub-prime mortgage crisis it is clear Lehman Brothers is not without fault. It appears that Lehman Brothers in the sub-prime mortgage collapse was using a small company, Hudson Castle, to shift investments off its books (Story, 2010). One can agree that "entities like Hudson Castle [which] operates to keep investments out of the reach of banking regulators" (Story, para. 6). Entities like Hudson Castle enable banks to exchange investments for cash to finance operations and make their financial statements appear stronger (Story). This type of practice encourages investors and employees to invest in an organization that represents itself falsely. Senior executives can then justify significant raises for themselves and other personnel.

Many would agree the psychological aspect of creating false entities to misrepresent financial records is done for ...

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Exhibit 1-7 on pages 26?7 lists four main categories of ethical standards for management accountants: competence, confidentiality, integrity, and credibility. For each of the following situations, indicate which of these four should influence the manager and what the appropriate action should be:

1. At a dinner party, a guest asked a General Mills manager how a major new cereal was doing. The manager had just read a report that said sales lagged much below expectation. What should he say?

2. Felix just graduated from business school with an accounting major and joined the controller's department of Pioneer Enterprises. His boss asked him to evaluate a market analysis for a potential new product prepared by the marketing department. Felix knows very little about the industry, and he never had a class to teach him how to make a market analysis. Should he just wade in without asking for help?

3. Mary Sue prepared a budget for a division of Southeastern Electronics. Her supervisor, the division manager, was not happy that she included results for an exciting new product that was to be introduced in a month. He asked her to leave the results for the product out of the budget. That way, the financial results for the product would boost actual profits well above the amount budgeted, resulting in favorable reviews for the division and its managers. What should Mary Sue do?

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