Ethics Challenge and Communicating in Practice - Essay Example

 Course Project 1: Ethics Challenge and Communicating in Practice Budgets put into perspective the future financial goals of a firm. Divergent views on budget-making process obfuscate budget-making process through ethical and communication in practice issues. Adverse budget situations sometimes require urgent and prudent unraveling for the budget to deliver on its broad mandate of keeping the organization strategically alert. The purpose of this paper is to highlight budgetary on ethics and communication in practice, and their possible resolutions. Ethics Challenge 1. a) Why Atkins and Granger behave in this manner, and the expected benefits of budgetary slack A budgetary slack is a premeditated allowance for excess spending as overstated expenses or understated income (Stevens 1). Atkins and Granger make liberal use of this budget-making technique when making sales and expense projections. Budgetary slacks alleviate the effects of deviations if they occur. A more shifty use of the technique is to make it easier for managers to achieve targets, especially where sales performance results in bonuses and appraisals (Stevens 1). b) How budgetary slack can adversely affect Atkins and Granger Budgetary slacks in sales and expenditure projections can adversely affect the staff the projections relate. In the case of Atkins and Granger, altered projections can result in less motivation to achieve more in their areas of responsibility as they can alter the figures to give the impression that they are performing beyond the projections. On another note, if the two staff can alter the financial figures at will, then there is serious risk of the pair falsifying account figures to serve selfish interests (Stevens 1). 2. Why the use of budgetary slack may be unethical from IMAs Statement of Ethical Professional Practice perspective The Institute of Management Accountants (IMA) requires its members behave ethically, and in ways that are responsible, honest, fair, and objective (IMA 1). IMA categorically opposes the use of confidential information for unethical and illegal motives. Overall, management accountants should cultivate restraint in situations that pose conflicting interests. IMA also requires that management accountants evade activities such as the budgetary slack that may jeopardize efficient execution of some activities. A budgetary slack presents amble opportunities for information asymmetry (Stevens 1). For instance, Granger cannot tell with certainty the actual sales figures because Atkins changes them before handing them over. On credibility, the IMA expects that management accountants disclose all relevant information that may influence the understanding, and use of the information (IMA 2). Modification of sales figures by Atkins adversely affects the ability by Granger to predict closing inventory levels, which is clearly unethical. In addition, Atkins violates IMA’s stipulation that information communication should be fair and objective. The IMA proposes ways in which ethical dilemmas can reach amicable resolutions. One of the ways the institute suggests the involvement of higher management levels, audit committee, or the board of directors (IMA 2). Such measures can mitigate the tendency for the use of budgetary slack to achieve ulterior personal agendas resulting from the falsification of accounting information. Communications in Practice 1. On whether the administration should be ‘fair’ and institute a round of across-the-board cuts whenever the government announces a cut in the level of subsidies Educational institutions face waning monetary support from their key sponsors, the government. Waves of government budget cutting come with little warning because of policy change or because declining economic conditions (Maddox 1). Dealing with reduced budget is a repulsive management responsibility that involves difficult and sometimes drastic decisions, which cause wide-ranging dissent in vicinity of the management’s influence. Budgetary quagmires require a crafty change in strategy, concentrating on cost reduction through a blend of techniques. Many strategies can be adapted where budget cuts are eminent, one of which is the sweeping approach of across-the-board budget cuts. In across-the-board cuts in spending, the topmost management arrives at a percentage figure, which they would like to reduce in all departments (Maddox 3). Accordingly, they ask departmental heads to institute initiatives to achieve the specified reductions. Across-the-board cuts may pose a number of setbacks to the smooth running of an organization (Maddox 3). Though across-the-board cuts may seem ‘fair’ on the surface, intrinsically, they are essentially inequitable. The disguised potential impacts may be grave, and the cuts may disastrously compromise the sustainability of some key operations of the institution. Sensitivity of certain areas to cost reductions is higher than in others. Haphazard cuts in budget allocations may put the organization’s capacity to deliver on its mandate in serious jeopardy. 2. Focused reductions instead of across-the-board cutbacks in the programs, and priorities necessary to bring spending in line with the revenues Even with budget limitations, making cuts is a delicate process that needs to ensure the organization remains running effectively, not just hobbling along. Upon this realization, focused reduction strategies come to the fore (Maddox 3). Through focused budgetary cuts, the management appreciates every department’s ability to cushion itself against cost reductions (Maddox 3). The process involves the identification by different managers of budget cut opportunities such as slacks and freezing of vacant positions. Hiring freezes and salary freezes may have visible impacts on the institution’s workforce through extra workload. Due to the repercussions of these drastic steps, the institutions may consider motivating employees through abbreviated salary raises. Certain priorities are of importance if spending is to remain at par with the revenue incomes in the organization. Identification of the priority budget elements is critical to weed out unnecessary but desirable cost items (Maddox 4). Such measures would effectively bring an acceptable coherence between spending and the revenue levels. 3. Managing continuous long-term reductions in budgets extending over a period of years Persistent budget cuts require enduring strategies exhibiting long-term sustainability capacity. Permanent measures, such as technological innovation and thorough organization restructuring are some of the options the institution may consider alongside crafting a new strategic plan (Maddox 5). Technological innovation includes the consolidation of information sources, and the use of outsourcing for some of the non-essential non-routine activities instead of hiring staff. Sometimes incessant budgetary limitations require the learning institutions to end some of their programs. Low enrolment programs are the common targets for this strategy (Graham 1). As pertains the staffing at the institution, options for workforce overhaul abound. The institution may consider contract renegotiation, career realignments, and facilitation and encouraging of volunteerism in the institution (Graham 1). Reduction of overtime is a good long-term strategy to keep the organization within its budgetary limits. Another useful strategy for declining budget allocations is the sharing of resources and the elimination of redundant activities. The management should identify cost drivers and causes of inefficiencies (Graham 1). Expenditure-revenue congruence is achievable in adverse budgetary situations through emphasis on recycling, energy-saving, parsimonious operation cost expenditures, and trimmed capital expenditure budgets. 4. Top-down (centralized with top administrators), or bottom-up (participative) decision-making, explain With the top-down budget-making approach, the top management takes responsibility for the entire budget-making process, with little participation from the lower managerial levels (Principles of Accounting 1). Employees sometimes view the top-down approach as a heavy-handed imposition of the senior management on the lower management levels of the organization. Discontent born of this damaging perspective on the company’s budget may thwart successful implementation of the budget. On the positive side, the mandated approach has a good view of the organization’s overall strategy. In the participative budget (bottom-up), the lower management levels exercise relative autonomy in formulating the budget, although the higher levels of management enjoy the prerogative of initiating the process and approving the final budget. Managers prepare the relevant budget segment to the budget committee in a constructive recursive process to arrive at a final practical figure that takes into consideration the firms objectives as well as the unique concerns of each management level (Principles of Accounting 1). Since the participative budget in voluntary, it is better for morale, as staff feel individually accountable for delivering on the promise they made to the organization through their part of the budget (Principles of Accounting 1). However, participative budget making is slower that the mandated (top-down) budget approach, due to the iterative process involved. Furthermore, some managers give preposterous provisions for budget slacks, which compound the inaccuracies of the final budget. 5. How issues such as protect-your-turf mentality, resistance to change, and consensus building should be dealt with Sometimes, forces of influence to an organization unite with the singular purpose of thwarting efforts to change existing conditions. The resistance may be internal or external, but the internal resistance is more common. Strategies to surmount these hurdles include the engagement of dissenting parties in the change processes (Maddox 8). Management should offer support, and aim to educate the affected personnel on the need and the benefits that the changes hope to bring for the organization and the employees as well. Conclusion Adverse budgetary issues, ranging from the budget-making techniques to the external elements that bear sway on the budget, pose serious and endemic challenges to organizations concerned. Whatever the nature of the challenges, the management must demonstrate active participation in resolution of the problem. Sometimes a shift in strategy, a paradigm change in the organization’s structure, or inquisitive review of the budgeting process by the top management or special committees is inevitably essential. Works Cited Graham, Steven. Budget Woes in Higher Education: A call for Leadership. Academic Leadership Journal: n. p, 2004. Web 26 November 2011 IMA. IMA statement on ethical professional practice. The Association for Accountants and Financial Professionals in Business: n. p. 2011. Web 26 November 2011 Maddox, David. Strategic Budget Cutting. Tgci.com: page 1-11, 1999. Web. 26 November 2011 Principles of Accounting. Budget: Planning for Success. Principles of Accounting. Web. 26 November 2011 Stevens, Douglas. The effects of reputation and ethics on budgetary slack. Journal of Management Accounting Research: p 1, 2002, Web 26 November 2011 Read More