EXERCISE 10-15 (CONTINUED) ALTERNATIVE SOLUTION

3. Stacy Cummins does not have any easy alternatives available. She has already taken the problem to the President, who was not interested. If she goes around the President to the Board of Directors, she will be put-ting herself in a politically difficult position with little likelihood that it will do much good if, in fact, the Board of Directors already knows what is going on. On the other hand, if she simply goes along, she will be violating the “Objectivity” standard of ethical conduct for management accountants. The Home Security Division’s manipulation of quarterly earnings does distort the entire company’s quarterly reports. And the Objectivity stan-dard clearly stipulates that “management accountants have a responsi-bility to disclose fully all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, comments, and recommendations presented.” Apart from the ethical is-sue, there is also a very practical consideration. If Merced Home Prod-ucts becomes embroiled in controversy concerning questionable ac-counting practices, Stacy Cummins will be viewed as a responsible party by outsiders and her career is likely to suffer dramatically and she may even face legal problems. We would suggest that Ms. Cummins quietly bring the manipulation of earnings to the attention of the audit committee of the Board of Direc-tors, carefully laying out in a non-confrontational manner the problems created by Lansing’s practice of manipulating earnings. If the President and the Board of Directors are still not interested in dealing with the problem, she may reasonably conclude that the best alternative is to start looking for another job. Case 10-35 (90 minutes) This is a very rigorous case; be sure that students understand variances and journal entries before it is assigned.