UNIVERSITY OF ALBERTA

EXECUTIVE MBA PROGRAM

ACCOUNTING 830

ORGANIZATIONAL PLANNING AND CONTROL

WINTER 2013

Assignment # 2

Submitted by: Jaydeep Parmar

Date: February 8, 2013

Problem # 1.36

( A ) Can you justify what Charles did?

Charles was not prepared for his new role as a CFO and he was threatened by his boss to adjust financial records for the company to his boss’ liking. He knowingly and wrongfully adjusted sales numbers so that company’s financial record looks good. This is not only unethical but illegal act and can’t be justified. Although he was fearful of losing his job and not finding any other suitable position in the city, he should have stayed firm and informed his boss that the idea of playing with financial records was not good at first instant. Now he is in same situation again and he is thinking to adjust sales number again. This can’t go on for forever without being caught by someone either within the organization or outside organization and may lead to serious consequences.

( B ) What could Charles have done to avoid the unethical dilemma that he faced? Assume that the company president could have made it impossible for Charles to work in Atlanta in a comparable job.

Charles should have refused to adjust sales numbers at the very first time as requested by his boss. He should have confronted his boss and explained to him that this way company’s financial results may look good for short term but eventually it is going to hurt everybody. He should have informed his boss that this is not only unethical but also illegal and that if regulatory authorities should find out about this type of wrongful adjustments in company records they will both be in trouble and may face charges. Although this task was difficult it was not impossible and in worse case Charles can always find employment in another city so he need not fear losing his job. Now that he had done it once his boss is asking him again to do same thing which he know is wrong. But he understands that this can’t continue for long. As it is stated in the case Charles is already facing consequences of undue pressures of his job in his personal life and in my view it is not really beneficial for him to continue this job anyway as eventually he is going to loose his job when caught by authorities for adjusting financial data.

( C ) What if Security and Exchange Commission discovered this fraud would Charles’s boss get in trouble? Would Charles?

If Security and Exchange Commission discovered this fraud, both Charles and his boss would get in trouble. To wrongfully adjust company financial records is not only unethical but illegal and punishable act.

Problem # 2.47 ( Part A )

( A ) What would you advise Mr. Frank to do? Compare the advantage and disadvantages of the system each company is using.

I would advise Mr. Frank to continue using job costing method with some modifications because although his company ( Midwest Insurance Co. ) is providing similar type of service as ( Northern Insurance Co. ) their clients are different. Midwest is mainly serving businesses and Northern is mainly serving individual home owners.

Northern Insurance Co., have very good historical cost data available to justify allocated overhead costs as per labor cost per package, but for Midwest there is lots of cost variation from loan to loan. So Midwest needs more detailed information about costs allocated to each case and thus can’t use same method as Northern Insurance Co. To reduce cost of accounting Midwest may stop tracking costs associated with expenses like telephone, travel and other costs which are relatively small compared to appraisal and legal fees. The total cost of these expenses then may be allocated to each loan according to cost driver. This way cost of accounting can be reduced and at the same time Mr. Frank can have better cost data available for each loan.

Northern Insurance Co. is using process costing method. The advantage of this type of costing method is that the cost of accounting is low. If product or service is uniform and there are no variations in cost from unit to unit this method provides fairly accurate cost data. The main disadvantage is that it does not provide detailed information regarding various components of costs.

Midwest Insurance Co. is using job costing method. The advantage of this type of costing method is that it provides detailed information regarding various components of costs. These way managers have more information to make appropriate decisions regarding cost control and analysis. But the cost of accounting and keeping track of all these costs are much higher than process costing method. You have to employ more resources to collect all that cost data elements.