Project Earnings Essay

1681 WordsMar 13, 20127 Pages
Project Earnings Manipulation: An Ethics Case Based on Agency Theory ABSTRACT: The impact of accounting information on ethical behavior has been extensively documented. Additionally, agency theory is a widely accepted behavioral perspective. Despite this, there is an absence of instructional material in the accounting education literature that ties ethical issues to an agency-theory context. The primary objective of this case is to highlight control system ethical issues using an agency-theory context. Students explore their own reactions to a prohibited but unmonitored cost allocation action. Thus, this case is positioned to fill this void in any accounting course that covers agency theory or management control systems. S ue…show more content…
Each project was unique, depending on specific water conditions as well as local environmental, sociopolitical, and economic issues. Too frequently for the Group Vice President (VP), the unique nature of each project had led to cost overruns, sometimes causing significant project losses. Senior management looked very unfavorably on these substantial losses. Worse yet, the Group VP was often surprised about these cost overruns, because the company had a very poor costinformation system. Costs were only accumulated at the completion of construction, and only then did these overruns get reported. To make matters worse, little detail was provided that could identify these cost overruns in the cost reports. An expensive and lengthy search was required to obtain information on which part(s) of the project has cost overruns. In short, top management had very little information and was poorly informed about the operation of the Membrane group. Consequently, the Group VP was reluctant to waste time on what was already “water under the bridge,” believing his time was better spent on current projects and preventing future overruns. Much discussion had taken place about how to avoid these surprises, and, as a consequence, systems analysts were scheduled to implement a better cost-tracking system. The new system could not be applied to current projects, including K(3) and the two recently started projects, but all new projects

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