95 11.7: Ethical Issues in Creating Operating Budgets

  • Last updated
    Dec 28, 2020
  • Anonymous
  • LibreTexts

 Learning Objectives 

  • Understand ethical issues associated with budgeting.

Question: Although bottom-up budgeting, in which management elicits input from employees throughout the company, is effective in actively engaging those who have to achieve the budgeted goals, this type of budgeting is not free from problems. Ethical issues often arise in the budgeting process, particularly when employees and managers are evaluated by comparing their actual results to the budget. How might ethical issues arise in the budgeting process?

 Key Takeaway 

An inherent conflict often exists between the planning and control phases of budgeting. During the planning phase, organizations are most concerned about getting accurate estimates that lead to positive results. The control phase requires evaluating performance of employees by comparing actual results to the operating budget. Employees often must decide between doing what is best for the individual employee and what is best for the organization.

Review problem 11.9

Assume you are the manager of the computer division of High Tech Retail, Inc. You are asked to help the company prepare a

budgeted income statement for the computer division before the start of each fiscal year. At the completion of each fiscal year, division managers receive a bonus equal to 10 percent of actual net income in excess of budgeted net income.
Describe the ethical conflict facing you as division manager when asked to help create the budgeted income statement for your division.


Icon for the Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License

Cost Accounting Copyright © 2023 by William (Bill) Bonner is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.

Share This Book