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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

Tehra Dactyl is an accountant for Skeds, Inc., a footwear and apparel company. The company’s revenue and net income have increased by more than 100% over the past three years. During the same period, Tehra and her colleagues in the Accounting Department have not received a raise or salary increase. Frustrated by not receiving a raise while the company has thrived, Tehra has begun submitting expense reimbursements for personal purchases. Tehra has a good relationship with her supervisor, and he simply “signs off” on Tehra’s expense reimbursements. Tehra suspects that he knows she is submitting personal expenses for reimbursement and is “looking the other way” because Tehra has not received a raise in the past three years.

Are Tehra and her supervisor acting in an ethical manner? Why or why not?

To determine

Internal Control: Internal control refers to the policies, and plans of the business organization along with other measures with a view to safeguard its assets, encourage the employees to adhere to the plans, to improve on the operational efficiency, and to ensure correct and reliable accounting information. Internal control is a process which ensures continuous reliability of accomplishment of a company’s objectives, related to operations, financial reporting, and in conformity with laws and regulations.

Five elements of internal control:

  • Control Environment: Control Environment refers to the attitude of top brass of the company or the corporate culture. The top brass of the company must set the tone to improve the morale for rest of the employees of the business.
  • Risk assessment: The business must be able identify the risk associated with it, and accordingly use the internal control to safeguard its assets and ensures fairness in presentation in accounting information.
  • Control procedures: The objective of setting the control procedure is to ensure that the business achieves its objectives.
  • Monitoring controls: The internal control used in the business is being monitored by the internal auditors who are hired by the business, to ensure that the employees are adhering to the policies of the business and running the operations efficiently. The external auditors on the other hand ensures that the business accounting records are being maintained in accordance with the Generally Accepted Accounting Principles (GAAP).
  • Information and communication: Information and communication system is important for a business and hence only authorized persons should be allowed the access to the confidential accounting information. Approvals are also should be made mandatory for the transactions by the control system.

Given: TD submits reimbursement of the personal expenses to his superior.

To determine: Whether T and supervisor is acting in an ethical manner.

Explanation

The act of T and her supervisor is very unethical. T has been disappointed but, it is not fair to reimburse the personal expenses incurred. It is one form of stealing cash from her company and this reveals the individual character...

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