Please see your book for the Business ethics case questions. Below are the solutions. You need to be able to show your ability to paraphrase and summarize the case solutions, not just to copy and paste them. Then upload your answers in one document.

Please see your book for the Business ethics case questions. Below are the solutions. You need to be able to show your ability to paraphrase and summarize the case solutions, not just to copy and paste them. Then upload your answers in one document.Chapter 1:

ANSWERS TO BUSINESS ETHICS CASE

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The third item will lead to the reduction of net income of the acquired company before acquisition, and will increase the reported net income of the combined company subsequent to acquisition. The accelerated payment of liabilities should not have an effect on net income in current or future years, nor should the delaying of the collection of revenues (assuming those revenues have already been recorded).

The first two items will decrease cash from operations prior to acquisition and will increase cash from operations subsequent to acquisition. The third item will not affect cash from operations.

As the manager of the acquired company I would want to make it clear that my future performance (if I stay on with the consolidated company) should not be evaluated based upon a future decline that is perceived rather than real. Further, I would express a concern that shareholders and other users might view such accounting maneuvers as sketchy.

a) Earnings manipulation may be regarded as unethical behavior regardless of which side of the acquirer/acquiree equation you’re on. The benefits that you stand to reap may differ, and thus your potential liability may vary. But the ethics are essentially the same. Ultimately the company may be one unified whole as well, and the users that are affected by any kind of distorted information may view any participant in an unsavory light.

Chapter 2:

ANSWERS TO BUSINESS ETHICS CASE

a and b. The board has responsibility to look into anything that might suggest malfeasance or inappropriate conduct. Such incidents might suggest broader problems with integrity, honesty, and judgment. In other words, can you trust any reports from the CEO? If the CEO is not fired, does this send a message to other employees that ethical lapses are okay? Employees might feel that top executives are treated differently.

Chapter 3

ANSWERS TO BUSINESS ETHICS CASE

Part 1

Even though the suggested changes by the CFO lie within GAAP, the proposed changes will unfairly increase the EPS of the company, misleading the common investors and other users. It is evident that the CFO is doing it for his or her personal gain rather than for the transparency of financial reporting. Thus, manipulating the reserve in this case comes under the heading of unethical behavior. Taking a stand in such a situation is a difficult and challenging test for an employee who reports to the CFO.

Part 2

The tax laws permit individuals to minimize taxes by means that are within the law like using tax deductions, changing one’s tax status through incorporation, or setting up a charitable trust or foundation. In the given case the losses reported were phony and the whole scheme was fabricated to illegally benefit certain individuals; hence there appears to be a criminal intent in the scheme. Although there is no reason to pay more tax than necessary, the lack of risk in these types of shelters makes participation in such schemes of questionable ethics, at the best.

Chapter 4

ANSWERS TO BUSINESS ETHICS CASE

Surreptitiously installing spyware on computers can be an unethical practice (the word surreptitious implies that the customer is unaware of the activity). The programs run in the background and can significantly slow down the computer’s operating performance. Sometimes these programs are used to pass on the consumer browsing history and may leak personal information to the advertising firm

Chapter 11

Business Ethics

Business ethics solutions are merely suggestions of points to address. The objective is to raise the students’ awareness of the topics, and to invite discussion. In most cases, there is clear room for disagreement or conflicting viewpoints.

1. The separation of duties is an important feature of maintaining adequate internal controls. In this case, the individual submitting invoices should not be the same individual that approves the invoices. It is appropriate for high level management to approve departures from normal procedures, but it is still necessary to have controls to address this case.

2. Unfortunately there are instances where ethics and compliance programs are designed for mid- and lower-level employees. This should not lead anyone to believe that upper-level managers are always ethical.

3. This is a very difficult issue for companies to balance. On one hand, the managers of these companies do not want stockholders and other users of the financial statements to have a mistaken belief concerning the issues at hand. If the information is not reliably disclosed, there might be an adverse impact on the firm’s stock price. But at the same time, they don’t want to appear to be hiding information. In this case, the users might believe that more significant issues are being withheld, and a negative stock price reaction might occur regardless.

Chapter 12

Business Ethics

Business ethics solutions are merely suggestions of points to address. The objective is to raise the students’ awareness of the topics, and to invite discussion. In most cases, there is clear room for disagreement or conflicting viewpoints.

1. Stock options, in theory, are used to create incentives for the firm’s executives to increase operating performance. The practice of backdating options defeats this purpose. The point of backdating options is to avoid issuing ‘in the money’ stock options which would have had both accounting and tax consequences not favorable to the firm. Backdating avoids accounting recognition.

2. Executives always have the right not to exercise options if they feel that there is an ethical issue. However, if the proper disclosures are followed (which is rarely the case), then back-dating options is not illegal under current laws.

Chapter 13

Business Ethics Solutions

Business ethics solutions are merely suggestions of points to address. The objective is to raise the students’ awareness of the topics, and to invite discussion. In most cases, there is clear room for disagreement or conflicting viewpoints.

1. Spring-loading is a contentious issue, and the following points are among those that may be considered in a discussion or debate of whether it should be allowed or not:

Though granting options is intended to motivate and incentivize the employees to generate more profits, granting an award that is already known (or strongly suspected) before-the-fact to be in the money very soon seems counter to this intent.
Companies engaged in spring-loading mislead investors by not disclosing that options are awarded with foreknowledge of the impending good news.
Spring-loading is legal as long as the compensation committee awarding the options knows the same information as the recipient, and the company informs shareholders that it does not withhold granting options when undisclosed, positive company information is pending.
Companies suspected of spring-loading cannot be said to have advantage of prior market reactions that have not actually taken place, and executives can argue, truthfully, that there is no way to know for certain how the market will react to impending news.

Option manipulation is generally more likely to occur in circumstances in which the company executives like CEOs have greater influence on the company’s pay-setting and governance processes, which suggests a lack of board oversight.

2. Spring-loaded grants might violate insider-trading rules, particularly if managers with knowledge of the information gives options to themselves, or if executives conceal good news from directors while urging them to grant options.

Also, see the following links: http://www.cfo.com/article.cfm/7880157/1/c_2984338

http://blog.issproxy.com/files/OptionsBackdating7806.pdf

http://www.aflcio.org/corporatewatch/paywatch/stockoptions.cfm

Chapter 14

BUSINESS ETHICS SOLUTIONS

Business ethics solutions are merely suggestions of points to address. The objective is to raise the students’ awareness of the topics, and to invite discussion. In most cases, there is clear room for disagreement or conflicting viewpoints.

1. Information to be presented for each of a firm’s reportable segments:

· General information

· Information about segment operating profit or loss

· Information about segment assets

· Information about the bases for measurement

· Reconciliation (IAS 14 vs. SFAS 131) of segment amounts and consolidated amounts for revenue, profit or loss, assets, and significant other items.

· Interim disclosures

· Enterprise-wide disclosures

1. Product or service disclosures

2. Geographic area disclosures

3. Major customer disclosures

2. Since the management currently measures profit and losses and asset allocation by restaurant concept, an abrupt change to presenting the segment information by geographical location only could be viewed as unethical. However, this area is one where the standards clearly leave the door open for subjectivity in interpretation. If management has a motivation for preferring to keep the information about the poorly performing restaurant private that is not counter to the objectives of the shareholders and other claim-holders (for example, prefers not to expose that information to competitors while a restructuring plan is implemented), then there could be ethical reasons for a shift in disclosure choices. According to SFAS No. 131, firms should segment their disclosures along the same lines that management uses in decision-making. This does not appear to be the case here. Thus, the CEO’s decision to present the segment information by geographical location seems to be counter to the intent of segmental reporting, i.e., the unveiling of information that has been merged or buried in the consolidated data.

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