Description
Variance analysis allows managers to evaluate a firm’s progress towards meeting organizational goals by comparing the planned outcomes (budgets) to the actual outcome. Using flexible budgets, cost accountants can perform this activity throughout the reporting period to uncover variances early in the reporting cycle. Having information early in the reporting cycle allows managers to implement alternative plans if necessary.
As we have seen with other cost accounting topics, there are grey areas in variance analysis that may provide the opportunity to promote one’s own self-interest. Usually, these opportunities occur because there is a misalignment of the firm’s profit goals and the employee’s performance evaluation and compensation package.
Instructions
Read case 16-54 about managing reported profits. This case can be found at the end of chapter 16 in your textbook.
Discuss the following questions in your initial post:
• Why would the accountant want to defer revenue and accrue expenses? Explain your response.
• Does this follow GAAP? (Hint: What are the rules for revenue recognition and the expensing of costs for financial reporting?)
• If not, is it still legal? Why or why not? • Is this action ethical?
Important Note: Use the GAAP codification, Ethics Decision Tree and the IMA Code of Ethics to support your responses to the discussion questions
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