This paper provides an analysis of the case study describing the current state of the ethical consideration and moral background for taking managerial decisions in the short-term earnings issues. Moreover, the paper studies their impact on the long-term path of the company’s development and progress. It is necessary to point out that the case study provides clear evidence based on the in-depth investigation and thorough field research. They prove that there is no clear agreement between managers of different organizational levels what decisions are ethical or unethical, moral or immoral (Anderson, Sweeney & Williams, 2012).
Summarizing the findings of the conducted survey with general managers, control, finance, and audit managers as the participants, the authors made the following generalizations relating to the earnings management.
The most important generalization is the fact that manipulating and changing of the operating procedures or decisions is more acceptable practice in short-term earnings management than changing the accounting methods. It is obvious that changes in the accounting methods are visible and objective auditors will reveal the inappropriate operations immediately (Gill, 2009). At the same time, such legal manipulations as making an early shipment or introduction of the liberal payment program for the customers are considered by managers as those of little influence on the company’s future operations.
It is also not surprisingly that managers prefer to change operating procedures in such a manner that they will not provide a large level of earnings. In addition, it is true that the direction of the earnings effect matters. Naturally, boosting the sales and thus earnings by unethical decisions is less acceptable than decreasing the earnings in the reporting period (Anderson, Sweeney & Williams, 2012).
It is an interesting statement, that managers perceive using overtime to meet the sales targets as well as selling excess items more ethically and morally justified than extended credit terms. Moreover, such methods as early shipment, specific payments terms, overtime, and reserves estimation appear to be more acceptable in the interim quarterly statements than during the annual audit. The current situation has two main reasons: dispersion of managers views about ethical decision-making to each of practical situations and high tolerance for operating manipulations.
When agreeing to do some operational manipulations, managers should clearly understand what long-term impact such a decision would have on the company. They should manage earnings in the sustainable way not pursuing only the short-term goal of meeting the established sales plan by any means. The authors of the case study gave two distinct examples relating to the poor long-term impact of unethical short-term earnings managing. It should be underlined that managers should assure that the quality standards for instance for the early shipments will be high with the aim to avoid potential returns, claims, repairs, and adjustments (Anderson, Sweeney & Williams, 2012). Moreover, sometimes the managers forget about the financial results that the company will have. It could our when they pursue their personal goals to get additional bonuses for meeting the sales plan by asking the biggest clients about the additional shipment at the end of the reporting period. It is a common practice when the company sells its product with a little margin, which allows only covering its costs for goods production (Gill, 2009).
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Regarding the importance of the truthful disclosure of all operations in the financial statements, it is crucial to state that different interpretation of ethical and unethical decision-making process may lead to different results. For example, the accuracy and reliability of company’s financial information could appear in question. Companies and large corporations should conduct regular surveys within the company and discuss obtained results officially to communicate the corporate standards of ethical decision making thus implementing the integrity and mutual trust.