Class 20 Ethical Considerations in Managerial Accounting Flashcards Preview

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Flashcards in Class 20 Ethical Considerations in Managerial Accounting Deck (18)
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What is the key issue in the Ford Pinto case?

How do you value a human life?


What was the problem with the Pinto?

- When it was rear-ended, it would burst into flames
- Ad: "Pinto leaves you with a warm feeling" (later taken off the air)


What were possible solutions to fix the issue with the Ford Pinto?

- Mount gas tank above axel which would have cut down on trunk space
- Rubber bladder on gas tank (not cost effective at $11/car)


What was in Ford's infamous cost/benefit memo?

- Valued human life at $200,725
- Would owe $49.5 million in damages
- Would cost $137 million to fix the car


Was the decision not to install the rubber bladder appropriate? Use 5-question analysis.

1) Profitable - Yes
2) Legal - Yes
3) Fair - No
4) Right - No
5) Virtuous - No


What faults can you ID in Ford's cost-benefit analysis?

- Tougher to put a $$$ value on a human life and human suffering
- Didn't consider public backlash (lost rep = lost sales)
- Discounting is not employed (TVM issue)


Should Ford have given its Pinto customers the option to have the rubber bladder installed during production for, say $20?

Authors say it is highly impractical (it was just the wrong car w/ wrong crash victim at the wrong time)


What kind of company was Megatron?

Medical device company (e.g. surgical joints)


What were the key issues in the Megatron case?

- Discovery, reporting and resolution of disclosure issues (created by the actions of other employees or exec officers)


What was the problem with Megatron's new line of titanium joints that had significant weight savings?

- 4 patients in China rejected the joints


How did Megatron respond to the patients who rejected the new titanium joints?

- Notified FDA
- South African doctors came up w/ cocktail of drugs to avoid rejection


What was the case with the KaeLoo Health deal?

- Push to sell a lot of joints at the end of the quarter
- KaeLoo agreed to buy large # on generous payment terms
- If any problems, they agree to buy it back


Should Megatron recognize revenue in the KaeLoo deal?

No (not really a sale, shouldn't be booked as revenue)


Assuming you were asked to recommend new internal controls and monitoring activities designed to expose this type of fraud before it took place, what means would you suggest Megatron use to help identify this problem?

a) Review operating results of each significant subsidiary at the parent level on at least a quarterly basis

b) Place any product classes experiencing significant sales fluctuations, order cancellations, regulatory scrutiny or media attention in a spe­cial review category

c) Assign additional internal audit staff to review sales and reporting activities in high-risk areas, particularly those that are within prod­uct special review categories and that occur within two weeks of period-end

d) Require the sales staff to certify that no side letters or any other con­tract modifications exist as to sales made by them

e) All of the above

e) All of the above


Set forth below are several factors that appear to have contributed to the intent of Eric Rogers to commit fraud (if he did so) at the Singapore subsidiary. Rank these factors in order of importance based on your judgment of the risk of fraud that each presents.

a) the phone call from the president of the subsidiary asking Rogers to tell the sales force to use all efforts possible to secure sales before the end of the quarter (Rank ____)

b) the decline in sales attributable to the regulatory and media attention focused on the joint replacement products (Rank ____)

c) an expected decline in the bonus pool at the Singapore subsidiary following record bonus payments (Rank )

d) the resumption of shipping at the Singapore subsidiary shortly before quarter-end (Rank ____)

C) 1


What facts in the case study would you cite in favor of the argument that Megatron is generally a highly ethical organization?

a) The example set by the chief executive officer in responding quickly and in a concentrated fashion to the situation once he received the notification from the Chinese Health Ministry

b) Megatron’s decision to respond with no comment to the first call from the media after word leaked about the problems with the joint replacement products

c) The announced decision of the CEO to share information about the medical investigation with the FDA, the Chinese Health Ministry, the South African regulators and the healthcare community

d) The fact that the internal audit staff reviewed the documentation surrounding the sale to KaeLoo

e) Answers (a), (c) and (d)

e) Answers (a), (c) and (d)


After concluding your phone call with Linda, what steps would you take to address the situation given your position in the company?

a) I would send an e-mail to Eric Rogers asking him to confirm the existence of the letter

b) I would contact the outside auditors and ask them to review the transaction

c) I would circulate an e-mail to the audit committee and Maggie (my boss, the CFO), outlining the facts as I know them

d) I would contact the CEO and the board members and ask them to fire Eric Rogers

e) I would contact Maggie but not the audit committee

e) I would contact Maggie but not the audit committee


Assume that you consult with Maggie (your boss, the CFO) about this situation, and the two of you turn this over to the audit committee. The audit committee examines the paperwork that is available (no letter surfaces from Rogers to KaeLoo) and interviews Rogers and Linda. Ultimately, the committee decides there is insufficient evidence to fire Rogers, but they continue to suspect that something about the sale is not right, even though the evidence is thin. Before the 10-Q is filed, you and Maggie recommend:

a) Commencing an internal investigation

b) Suspending Rogers with pay??

c) Reversing the sale from the March 31 quarter??

d) Informing the entire board of these facts

e) All of the above

e) All of the above