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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Ethics in Action

Tonya Latirno is a staff accountant for Cannally and Kennedy, a local CPA firm. For the past 10 years, the firm has given employees a year-end bonus equal to two weeks' salary. On November 15, the firm's management team announced that there would be no annual bonus this year. Because of the firm's long history of giving a year-end bonus. Tonya and her coworkers had come to expect the bonus and believed that Cannally and Kennedy had breached an implicit agreement by discontinuing the bonus. As a result, Tonya decided that she would make up for the lost bonus by working an extra six hours of overtime per week for the rest of the year. Cannally and Kennedy’s policy is to pay overtime at 150% of straight time.

Tonya's supervisor was surprised to see overtime being reported, because there is generally very little additional or unusual client service demands at the end of the calendar year. However, the overtime was not questioned, because employees are on the "honor system” in reporting their work hours.

  1. 1. Is Cannally and Kennedy acting in an ethical manner by eliminating the bonus? Explain your answer.
  2. 2. Is Tonya behaving ethically by making up the bonus with unnecessary overtime? Why or why not?

1.

To determine

Ethics Case

Ms. T is a staff accountant for C and K CPA firm. For the past 10 years, the firm has provided a year-end bonus equal to two weeks’ salary to all its employees. However, the management team declared not to provide bonus for the current year. Since T and her co-workers expected the bonus due the firm’s past records, they believed that the firm has breached the implicit agreement by discontinuing bonus.

Therefore, to make her bonus, she decided to make up her lost bonus by working some additional hours as the firm has the policy of paying overtime at 150% of straight time. Ms. T’s supervisor was surprised to find the reported overtime hours as there was not much client service demand. The overtime was not questionable as the employees were active during their overtime.

To explain: whether C and K firm is acting in an ethical manner by eliminating the bonus.

Explanation

C and K firm, is acting in an ethical manner by eliminating bonus. This is because, the firm did not have an obligation to pay bonus to its employees every year. It depend upon the firm’s wish to pay bonus to its employees. Most companies do not declare bonus on a frequent basis for different factors su...

2.

To determine

To explain: whether Ms. T is behaving ethically by making up the bonus with unnecessary overtime.

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