_____________________________________________________________________________________________

PROFESSIONAL ETHICS
CASE STUDY
_____________________________________________________________________________________________

prepared by:

Beley, Danica
Cenit, Julie Ann
Marzan, Kristine
BS- Accountancy
Executive Summary

Franklin is the sales manager of Darius Enterprises, a very profitable distributor of office
furniture to local businesses. A recent economic downturn has created an extremely tight cash
position, and the company has been hurt by the bankruptcy of two key costumers. In late
October, anticipating an economic recovery, Franklin began an extensive remodelling of the
companys sales floor. Construction costs, decorating and equipment purchases are projected to
cost P250, 000.
Darius has a policy that individual expenditures in excess of P200, 000 must be approved by the
firms BOD. Franklin, unfortunately, missed the deadline to have the board consider this project
at its regular September meeting. Not wanting to wait until the next meeting in December, he
subdivided the project in two parts-construction and decorating (190,000) and equipment
purchases (60,000)-neither of which needed board approval because of the dollar amounts
involved. The project was recently completed and sales have begun to recover. Customers have
raved about the new sales area, noting that it is far superior to those of Dariuss competitors.

Problem Statement

Would Franklins approach of subdividing the project in two parts have any effect on the
companys financial statements?
Did Franklin behave in an ethical manner?
Which, if any, of the following standards of conduct would have applicability to
Franklins conduct: competence, confidentiality, integrity, or credibility? Briefly explain.

Analysis

Franklin, sales manager, have expenditures in remodelling companys sales floor which
exceeds P200, 000 that it needs to be approved by the BOD. However, he missed the deadline for
the approval of the board, therefor he subdivided the project in to two parts and the amounts
resulted does not exceed in the company policy of expenditures that needs permission of the
BOD.
Discussion of Alternatives

1. Even though Franklin subdivided the project into two parts, it doesnt have any effect on
the companys financial statements. The costs involves are construction costs, decorating
and equipment purchases which separate in two- construction and decorating, and
equipment purchases, though these expenditures need different activities it still will come
up with the same total cost.

2. With the results of actions of the sales manager, Franklin, the project is completed, their
sales are recovering and their customers raved about the new sales area in despite of his
bypassing the companys policy. He subdivided the plan in two parts but its expenditures
comprises of construction costs, decorating and equipment purchases are considered into
one project thus their accounting treatment indicates in a different way therefor Franklin
behaved in an unethical manner.

3. The standards of conduct which would have applicability to Franklins conduct are
integrity and credibility. First is integrity, managers must be honest, fair and objective in
all professional and business relationship and therefor they must avoid any performance
which deals with prejudice of the ethical performance of duties and responsibilities. And
also, regardless of whatever situations you are faced with you must do it in a professional
and ethical manner within the company. Second, credibility concerns with disclosing all
relevant information that could reasonably be expected to influence an intended user's
understanding of the reports, analysis, or recommendations; disclosing delays or
deficiencies in information, timeliness, processing, or internal controls in conformance
with organization policy and/or applicable law and communicating information fairly and
objectively. Managers credibility will also build an effective relationship based on trust
and respect in bringing deadlines and attaining outcomes.

Recommendations

We can recommend that Franklin, sales manager, wouldnt have missed the deadline of
the approval of projects by the board in order for them to follow the companys policy and the
information would have been communicate fairly and objectively . Subdividing the expenditures
into two parts doesnt seem a right step to decide that problem; he must have wait the next
approval meeting so that bypassing the companys policy wouldnt be an issue. And it is because
disclosing all relevant information that could reasonably be expected to influence the user's
understanding of the reports, analysis, or recommendations are an important aspect of an ethical
behaviour of a professional.