Conflict Interest Case Essay

696 Words Apr 21st, 2011 3 Pages
Subject: Chief employee bonus: Conflict Interest. To: Ethics for Accountant From: Kyungwon Kwak Date: 03/07/2011 1. Ethics Case-Chief employee bonus
The WGN Company has a bonus arrangement, which grants the financial vice president and other executives a $15,000 bonus if the net income exceeds the previous year's by $1,000,000. Noting that the current financial statements report an increase of $950,000 in the net income, Vice President Jack Brickhouse asks Louise Boudreau, the controller, to reduce the estimate of warranty expense to $60,000. The present estimate of warranty expense is $500,000 and is known by both Brickhouse and Boudreau to be a fairly "soft" amount.
Possible raising questions: | · | Should Boudreau
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To protect privacy (to some extent), financial figures are often disclosed in ranges such as "$100,000 to $500,000" and "over $2,000,000".
RecusalThe imperative for recusal varies depending upon the circumstance and profession, either as common sense ethics, codified ethics, or by statute. For example, if the governing board of a government agency is considering hiring a consulting firm for some task, and one firm being considered has, as a partner, a close relative of one of the board's members, then that board member should not vote on which firm is to be selected. In fact, to minimize any conflict, the board member should not participate in any way in the decision, including discussions.
Third-party evaluationsWhat is typically done is to hire an independent firm (a third party), well-qualified to evaluate such matters, to calculate a "fair price", which is then voted on by the minority shareholders.
Third-party evaluations may also be used as proof that transactions were, in fact, fair ("arm's-length"). Codes of ethicsGenerally, codes of ethics forbid conflicts of interests. Codes of ethics help
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