TITLE PAGE

Sample Question 01 2

Question A 3-6

Question B 7-10

Question C 11-17

References 18

Table of contents

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Question

No1

Roniger products Company operates three divisions, each its own

manufacturing plant and marketing/ sales force. The corporate headquarters and

central accounting office are in Roniger, and the plants are in Freeport, Rockport and

Bayport, all within 50 miles of Roniger. Corporate management treats each division

as an independent profit centre and encourages competition among them. They

each have similar but different product lines. As a competitive incentive, bonuses are

awarded each year to the employees of the fastest growing and most profitable

division.

Jose Molina is the manager of Roniger’s centralized computer accounting

operation that enters the sales transactions and maintain the accounts receivable for

all three divisions. Jose came up in the accounting ranks from the Bayport division

where his wife, several relatives and many friends still work.

As sales documents are entered into the computer, the originating division is

identified by code. Most sales documents (95%) are coded incorrectly. As the

manager, Jose has instructed the data-entry personnel to assign the Bayport code to

all uncoded and incorrectly coded sales documents. This is done he says, ‘in order

to expedite processing and to keep the computer files current since they are updated

daily’. All receivables and cash collection for all three divisions are handled by

Roniger as one subsidiary accounts receivable ledger.

a) Who are the stakeholders in this situation?

b) What are the ethical issues in this case?

c) How might the system be improved to prevent this situation?

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Accounting Project Question A: “ Who are the

stakeholders in this situation?”

Source from Wikipedia.

Stakeholders are one who has a share or an interest in an enterprise.

Stakeholders in a company stand of shareholders, directors, management, suppliers,

government, employees, and the community. Wikipedia defined Stakeholder as a

party that can affect or be affected by the actions of the business as a whole. When

did the stakeholder concept exist? Based on our group research, the stakeholders’

concept was first used in 1963. It is started in an internal memorandum at the

Stanford research institute. There, it is defined that stakeholders as “those groups

without whose support the organization wold cease to exist.” Since then, the

stakeholders considered as one of important asset to a company in business

practise and theorizing relating to strategic planning and management, corporate

governance, business purpose and corporate social responsibility (CSR).

Latest information that we get is that the tern ‘Stakeholder’ has been

broadened to include anyone who has interest in a matter related to the company.

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Example of Stakeholders in a company.

Stakeholders Examples of interests

Owner private/shareholders Profit, Performance, Direction

Government Taxation, VAT, Legislation, Low

unemployment

Senior Management Staff Performance, Targets, Growth

Non-Managerial Staff Rates of pay, Job security

Trade Unions Working conditions, Minimum wage,

Legal requirements

Local Communities Jobs, Involvement, Environmental

issues, Shares

Customers Value, Quality, Customer Care, Ethical

products

Creditors Credit score, New contracts, Liquidity

Source from Wikipedia

A stakeholder is not necessary to have direct interest to the company. They

may or may not have a direct interest in the business, and may be in contact with the

business on a daily basis, or may just occasionally. Some people who not very

familiar in business organization always get confuse between the terms

“Shareholders” and”Stakeholders”. It is important to erase the misconception of both

terms. Although they sound the same but there are a big different between both

positions. The right definition for shareholders is they hold shares in the company. It

is also means that they own part of the company. The power shareholders has in a

company is depends on how many shares they hold. The bigger the amount of

shares they have bigger power in that particular company. Shareholders are also

stakeholders. But not all stakeholders are shareholders. For the stakeholders, the

story line is different. Stakeholders as defined earlier, have an interest in the

company but do not own it unless they are the shareholders. Both of them have

different objective and aims. It is often and natural for shareholders and other

stakeholders come into conflict in an organization.

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In an organization, the ethical problem is not something that can be easily avoided. It

is mostly happened in a department which involve money calculation. What is

ethics? Ethics refers to the moral rights and wrongs of any decision on business

makes. Different people have different point of view in its value of judgment, the

importance and meaning. Most of the business organization will adopt this ethical

policy as awareness and believe that with the adoption of this policy the company

may run well and improve their sales. Although ethical issues exist everywhere in

company, but there are companies that have a strong ethical policy. There are The

Body Shop and Co-Op. Below is some examples of ethical policies:

Reduce pollution by using non-fossil fuels.

Disposal of waste safely and in an environmentally friendly manner.

Sponsoring local charity events.

Trading fairly with developing countries

We are already familiar with the example of ethical policies; however, those kinds

of ethical policies are not our focus for this report. Our main focus is based on the

article that relate to Roniger product Company. In this company, there is an ethical

problem that taken lightly by the manager of the company, Jose Molina. From the

article, the information given is that most sales documents which roughly about 95%

are coded. However, the remaining 5% is either not coded or incorrectly coded. Jose

Molina instructs the data entry personnel to assign the Bayport code to all uncoded

and incorrectly coded sales document. This action is actually unethical. He is trying

to hide the real sales pattern by separating the sales document. Instead of doing

correction, he choose to file the incorrect document to separate sales document. It is

true that the decision is in his hand since he is the manager which also known as the

stakeholders of the company. People put trust on him but yet he manages the

company very lightly. The company might be aware of the situation that is why the

position of people who work with the accounting area is limited. From the article, we

know that Roniger is assigned to do the collection of cash and account receivable for

all three divisions as one subsidiary account receivable ledger.

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In the article, if we are to describe the stakeholders:

Stakeholders In Roniger’s Company

Owner private/shareholders Roniger

Government Corporate management

Senior Management Staff Jose Molina

Non-Managerial Staff Jose’s wife, Jose’s relatives, Jose’s

friends, data entry personnel

Trade Unions -

Local Communities Freeport, Rockport, Bayport

Customers -

Creditors -

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Accounting Project Question B: “WHAT ARE THE ETHICAL ISSUES IN THIS CASE?”

ETHICAL CONSIDERATIONS IN DECISION MAKING

Ethics can be defined as the moral principles that determine the “rightness” or

“wrongness” of human behaviour. Accounting is a career field where high ethics and

morals are important character traits for individuals. Poor accounting ethics can lead

companies into bankruptcy from improperly reported financial information.

An ethical dilemma is simply a situation involving a choice among two or more

alternatives that have significant and often adverse then impacts on others. In this

article the major ethical issues from the decision maker’s point of view as possible

conflicts. For example, self-esteem versus loyalty to supervisor and personal

financial gain versus honesty and integrity. Below are example of ethical problems

and situations in accounting field:

Fraud

Accountants with poor ethical standards may conduct fraudulent activities,

such as overbilling clients or delaying vendor payments. Most fraud cases

involve hiding cash for internal purposes.

Embezzlement

Accountants may embezzle from their employers when given too much

responsibility and little error. These situations give accountants more control

than necessary and the ability to mislead their employers on financial

information.

False Information

Some companies employ accountants who have the ability to manipulate

financial transactions into positive company results.

Tax Evasion

Some accountants create illegal tax shelters to hide company income.

Companies use these shelters to avoid paying government income tax.

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Personal Loss

Poor accounting ethics can cause great personal damage in addition to

business problems. Accountants found guilty of manipulating financial

information are sent to jail, creating difficult situations for the accountant's

family members.

Six steps in ethical decision making:

1) Determine the facts

2) Identify the stakeholders

3) Specify the ethical issues involved

4) Determine the alternatives

5) Identify the consequences

6) Make the decision

Standard of ethical conduct for management accounting and financial

management

Practitioners of management accounting and financial management have a

responsibility to the public, their profession, organization they serve and themselves

to maintain the highest standard of ethical conduct. Therefore, Institute of

Management Accounting (IMA) has determined the following standards of ethical

conduct for practitioners of management accounting and financial management.

Competence

They have to maintain an appropriate level of professional competence by

ongoing development of their knowledge and skills

Perform their professional duties in accordance with relevant laws, regulations

and technical standards.

Prepare complete and clear reports and recommendations after appropriate

analyses of relevant and reliable information.

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Confidentiality

Refrain from disclosing confidential information acquired in the course of their

work for unethical of legally obliged to do so.

Inform subordinates as appropriate regarding the confidentiality of information

acquired in the course of their work and monitor their activities to assure the

maintenance of that confidentiality.

Refrain from using or appearing to use confidential information acquired in the

course of their work for unethical or illegal advantage either personally or

through third parties.

Integrity

Avoid actual conflicts of interest and advise all appropriate parties of any

potential conflict.

Refrain from engaging in any activity that would prejudice their ability to carry

out their duties ethically.

Refuse any gift, favour or hospitality that would influence their action.

Refrain from either actively or passively sabotage the achievement of the

organization’s legal and ethical objectives.

Recognize and communicate professional limitations or other constraint that

would prohibit responsible judgment or successful performance of an activity.

Communicate unfavourable as well as favourable information and

professional judgements or opinions.

Refrain from engaging in or supporting any activity that would harm the

reputation of the profession.

Objectivity

Communicate information objectively and fairly.

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Disclose totally all relevant information that could reasonably be expected to

influence an intended user’s understanding of the reports, comments and

recommendations presented.

What are the ethical issues in this case?

From article given, we can see clearly that Jose Molina as manager of

Roniger Company has full power in conducting centralized accounting operation for

all account receivables for three divisions. On the other hand, there are some ethical

dilemmas in regard to how a transaction of sales documents from three divisions are

recorded in the company accounts receivable ledger. Sarah (not real name) is the

data-entry personnel for Mr. Jose Molina.

Mr. Jose has instructed his data-entry personnel to enter all sales transactions

from three divisions into computer as the originating division is identified by their own

code. This is proper accounting. However, 95% of sales documents are coded while

remainder are not and have incorrect code while entering into computer. What Mr.

Jose has asked for is that to change all the 5% of not coded and coded wrongly of

sales documents into Bayport division code. His reasoning is that to expedite

processing and computer files can up to date faster because the transactions are

updated everyday. In Bayport division there are consist of his wife and most of his

relatives and friends who work there. As we know corporate management would

reward bonuses for any division’s employees if the division achieves the fastest

growing and most profitable division. Therefore, by doing the instruction of Mr Jose

may rise the overall annual revenues of Bayport division and give big potential for

that division to win as the most achievable profit. The reason of Mr. Jose may not be

proper accounting but it is good for the future of the company and for Sarah’s future

to the company and also Mr. Jose’s relatives. Sarah does not want to make this

change because it is improper accounting and is unethical as that is not fair for other

divisions ‘right, but she does not want to lose her well-paying job with Roniger

Company.

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Accounting Project Question C: “How might the

system is improved to prevent this situation?”

For Roniger company, one of the big issues of accounting is that all sales

documents that are entered into the computer, the originating division is identified by

code. But not all documents are coded (only 95%) and the 5% remaining are either

not coded or are coded incorrectly.

We are going to discuss what exactly is the Accounting Code, and various ways

that we can improve the accounting system by improving the coding quality.

1- Definition

The account code is a method of grouping the individual transactions into certain

classifications. The account code consists of four numeric characteristics where the

first digit represents a specific type of the account, by providing major balance sheet

classification and revenue and expense grouping.

2- Types of Account Codes

(a) Chart of Accounts

A Chart of Accounts lists the account titles and account numbers being used by a

business. They are the shorthand versions of the account names. One number

equals one account name – just like your social security number is unique to you.

Accounting numbers usually have two or more digits. Assets are often numbered

beginning with 1, liabilities with 2, owner’s equity with 3, revenues with 4, and

expenses with 5. The second and third digit in an account number indicates where

the account fits within the category.

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Example of 3-digit Chart of Accounts of a company:

Balance Sheet Accounts

Assets Liabilities Equity

101 Cash

111 Accounts Receivable

121 Notes Receivable

141 Supplies

151 Furniture

171 Building

191 Land

201 Accounts Payable

211 Salary Payable

221 Interest Payable

231 Notes Payable

301 Company Capital

311 Withdrawals

Income Statement Accounts (Part of Owner’s Equity)

Revenues Expenses

401 Service revenue

411 Interest revenue

501 Rent expense, Computer

502 Rent expense, Office

505 Salary expense

510 Depreciation expense

520 Utilities expense

530 Advertising expense

540 Supplies expense

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Some companies use a four-digit coding system, where some uses two-digit

coding system. For example, the numbers 1 to 29 may be used exclusively for

Assets accounts; numbers from 30 to 40 may be reserved for Liabilities; numbers in

the 50s may signify Owner’s Equity accounts; numbers in the 60s may represent

Revenue accounts; and numbers from 70 to 99 may designate Expense accounts.

In large or complex businesses with many more accounts, a more elaborated

coding system like the four-digit would be needed. The coding system is especially

necessary for computerized accounting.

Below is the Account classification in four-digit that used in a company:

1XXX - Assets

2XXX - Liabilities

3XXX – Net Asset Classifications

4XXX – Tuition & Fees Revenue

5XXX – All Other Revenue

6XXX – Compensation Expenses

7XXX – General & Administration

(b) Account Codes and Other Codes in Accounting

Chart of Accounts are commonly used in all companies and cooperation, it just

varies a little according to the company’s needs and preferences. Some company

may come up with their own system of Chart of Accounts.

Apart from Chart of Accounts, Accounting used many other types of codes that

will help the accounting process to go on smoother. It is also varies according to the

company itself, but in order to improve the Accounting System and prevent wrong

transaction coding, the following types of codes can help out.

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Account codes

Account codes are part of the Banner C-FOAPAL (Chart, Fund, Organization,

Account, Program, Activity, Location) accounting string. An Account code designates

asset, liability, equity, revenue, expenditure, and transfer account classifications.

It is important that a fixed asset's Account code properly reflect the item's cost

and whether it is capitalized or expensed. The Account code also reflects how an

item is tagged and whether it is inventoried and tracked in Banner as a fixed asset.

An Account code is usually assigned during the acquisition process. The Account

code determines whether capitalization entries in the General Ledger are posted

correctly. If an incorrect Account code is assigned to an item, it can affect the

reconciling of a department's monthly operating ledger, as well as the department's

inventory process. Incorrect Account codes must be corrected with a journal voucher

in Banner.

Location codes

Location codes are part of the Banner C-FOAPAL (Chart, Fund, Organization,

Account, Program, Activity, Location) accounting string. Location codes are the last

segment of the C-FOAPAL string. They are used primarily with fixed assets to

denote the geographic location of a fixed asset item. Every fixed asset equipment

record must have an assigned Location code to identify the campus, building, and

room where the equipment can be found. Location codes are an important tool for

locating items during a department's biennial physical inventory. Location codes are

also used in indirect cost rate calculations.

Condition codes

Condition codes indicate the status of a fixed asset, such as whether it is being

used by the department, or is on loan to an employee. Every fixed asset record must

have a condition code assigned to it.

It is important to update the correct condition code for an asset when the

condition changes, because condition codes are used in calculating F&A (Facilities &

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Administration) overhead rate calculations.   Condition codes are also generally

reviewed by auditors.

Commodity Codes

A commodity code is a five-digit code used to categorize equipment for reporting

purposes and also used to assign a useful life to an item for depreciation purposes.

Every equipment record is assigned a commodity code, usually during the

acquisition process. If an item is purchased, the buyer enters the commodity code on

the requisition form when purchasing the new item. Departments must take care in

assigning the correct commodity code for a newly acquired asset, because the

commodity code determines the asset's useful life, which directly affects the annual

calculation of depreciation. For example, the commodity code for an automobile is

07006, which carries a useful life of four years. The cost of the automobile would be

depreciated over the course of four years.

Entity Codes

An Entity Code attribute defines the kind of associated self-supporting activity.

This permits exclusion of the equipment from indirect cost use charges or inclusion

of it in excess funds and depreciation calculations.

3- Recommendations

- Improve online transactions, so that selecting accounting elements is easier.

- Improve commodity codes and their relationships to account codes

- Enhance the expenditure account code hierarchy to simplify account code

selection

- Eliminate miscellaneous account codes

- Improve financial reporting processes, including timely maintenance of

organization code hierarchy

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To sum up, the incorrect coding or fail to code the sales document can happen

because of the inconvenience system of the code. It might me either too complicated

or too simple that doesn’t really go with the size and need of the company or the

cooperation.

So, in order to improve these accounting mistakes, first step the company needs

to define a suitable chart of accounts to identify the necessary and suitable chart of

accounts, as well as assign the other codes that needs to be used for accounting

purpose as well other purposes throughout the company. A clear and good system

of account codes will make the accounting process go smooth and can reduce errors

and ambiguity.

The Management Control Cycle.

Management Control Cycle is one of the ways for us to improve the

performance of the employee as even with the best system without a good user it is

useless. This is done by evaluating their performance and preparing the planning to

improve the management. There are five steps in the Management Control Cycle.

First, is setting a standard as improperly setting might lowered the motivation of the

employee. Each employee has their own capability there for; too high standards

might not motivate the employee but the other way around. In order to set the proper

setting we require the second step which is preparing the planning budget. In this

step we will plan the improvement we should take and how much improvement we

do need. Besides that, we also will calculating budget the cost we use in the

improvement we planning to do. This is important for us to know what we are

expecting as for how much we are spending on.

Next step is collecting actual results, after we had done with the planning and

implementing the planning we collect the result which is consider as the progress on

what we had done. The results collected were next use for the next step which is

reconstructing the budget. After the collecting the result, we must reconstruct the

budget in order to improve the step which we might mistook. This is important as we

will not want to waste our money in useless things.

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In order to find the best way we must collect all the information either it is

quantitative or qualitative. By collecting all the information we will able to evaluate

fairly the performance of the employee. By evaluating the performance of employee

it will help us to set the standards in the future for the best of the company.

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References:

Book:

Accounting, by Horngren, Harrision, & Oliver, 8th Edition, Pearson International

Edition.

Website:

1- http://www.temple.edu/controller/general_accounting/chart.htm , Chart of

Accounts, Retrieved: May 01, 2010

2- http://www.answers.com/topic/coding-of-accounts , Coding of Accounts,

Retrieved: May 02, 2010

3- http://www.ehow.com/

4- http://www.springerlink.com/

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