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    420 views9 pages

    ch15 Mcs Management Control Related Ethical Issues PDF

    Uploaded by

    Muchamad Taufik

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 9

    Management Control Systems

    Chapter 15:
    Management Control-Related Ethical Issues

    Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003
    Ethics ...
     Ethical principles can provide a useful guide for
    defining how employers and employees should
    behave.
     Both employers and employees should consider the
    impact of their actions on a variety of stakeholders:
    » Shareholders, bondholders, creditors;
    » Board of directors, management, employees;
    » Competitors, customers, suppliers;
    » Government, communities; and,
    » Society-at-large.

     Ethical issues  legal issues

    Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 -2-
    Codes of conduct ...
     Corporate codes of business conduct & operating
    principles often make ethical behavior explicit as part
    of a personnel / cultural control mechanism.

     They often include virtues, such as:


    » Integrity;
    » Loyalty;
    » Objectivity;
    » Confidentiality;
    » Competence.

     Ethical tone at the top is important too.


     Many important ethical issues are not black or white.

    Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 -3-
    Creating budgetary slack ...
     On the one hand, employees who create slack …
    » Exploit superior knowledge about business possibilities;
    » Increase the probability that they meet the budget and
    earn performance-dependent rewards (which is costly
    to the owners);
    » Distort resource allocation and performance evaluation
    decisions that rely on the budget submissions.

     On the other hand, these employees…


    » Protect themselves from the downside potential of an
    uncertain future;
    » Protect themselves from evaluation unfairness caused
    by imperfect performance measures;
    » Just do “what everybody else does” and is aware of.

    Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 -4-
    It depends on ...

     How good the performance measures are;


     How rigid budget targets are;
     What the employees intentions are (self-interest);
     Whether superiors are aware of the slack;
     Whether the superiors encourage slack creation;
     Whether the amount of slack is “material;”
     Whether the individual is bound by one or more
    explicit codes of professional conduct.

    Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 -5-
    Earnings management ...
     On the one hand, influencing reported earnings ...
    » Violates the duty to disclose fairly presented information;
    » Is inconsistent with integrity obligations to be honest, fair,
    and truthful;
    » Is not apparent to external or internal users of financial
    statements, so that personal advantages could be derived.

     On the other hand, ...


    » Smooth out meaningless, short-term perturbations in the
    earnings measures to provide more, rather than less (?),
    informative performance signals to financial statement users;
    » Protect employees from rigid, unfair performance evaluations;
    » Avoid taking other, more damaging actions (e.g., layoffs).

    Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 -6-
    It depends on ...

     The direction of the manipulation (boost vs. smooth);


     The size (materiality) of the manipulation;
     The timing (e.g., related to a bond or share offering);
     The method used (e.g., defer discretionary spending,
    change accounting policy);
     The employee’s intent;
     The clarity of the rules prohibiting the action;
     The degree of repetition (one-time vs. on-going).

    Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 -7-
    Controls that are too good ...
     Computer surveillance programs, cameras, personal
    location devices, etc.

     On the one hand, ...


    » Congruent, accurate, and timely controls

     On the other hand, …


    » Employees’ right to autonomy from controls that are
    oppressive
     Electronic sweatshops

    Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 -8-
    It depends on ...

     Is the use of these controls secret or disclosed?

     Are employees involved in establishing the system


    (making it fair)?

     Are these controls used for monitoring employees


    in training, or do they also monitor experienced
    employees?

    Merchant and Van der Stede: Management Control Systems © Pearson Education Limited 2003 -9-

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