A2-42 Ethics involved with statement of cash flows preparation (Learning Objectives 1, 2, & 3) ETHICS The Green Giraffe Restaurant Group has 21 restaurants scattered across the midwestern por- tion of the United States. Green Giraffe is not publicly held, but is owned by a small group of investors. For years, the company has used the indirect method in preparing its statement of cash flows. Recently, it has come to the attention of a few of the investors that the statement of cash flows might be easier to understand and use if it were prepared using the direct method At the quarterly meeting of the investors, they decide that the statement of cash flows for the Green Giraffe Restaurant Group should be prepared using the direct method Christopher Wargo is the controller for the Green Giraffe Restaurant Group. He graduated from college several years ago. He vaguely recalls learning about the direct method for pre- paring the statement of cash flows in college but has never used the method. Wargo is rather resentful that the investors are dictating accounting policy; he feels that the financial report ing that is currently done is adequate. Besides, even if the company reports using the direct method, a supplemental schedule of the indirect method will still need to be prepared change just seems to create extra work for Wargo . This Wargo decides he\'ll just do his best on preparing the statement using the direct method He looks online and finds the Wikipedia page for the statement of cash flows and uses that model to prepare the statement. The company\'s information system is not set up to collect data for the direct method at this time. The data can be obtained but it will take several days. Wargo decides to just estimate the numbers that he\'s missing rather than spend the time to get the correct numbers. He feels it is unlikely that the auditors will find these few numbers that he has plugged; after all, the totals will be correct. This shortcut he is taking will save hinm hours of work. Requirements 1. Using the IMA Statement of Ethical Professional Practice as an ethical framework, answer the following questions: a. What is(are) the ethical issue(s) in this situation? b. What are Wargo\'s responsibilities as a management accountant? 2. Discuss what Wargo should do in this situation. Refer to the IMA Statement of Ethical Professional Practice in your response.
1) Refering to IMA Statement of Ethical Professional Practices,
a. The ethical issues raised in the case are : 1) Management is not following the instructions of the controller / investors board meeting. 2) The board should be communicated with the fair and objective information, but Mr. Wargo, the Controller, instead of providing correct and accurate information under the Direct method of Cash Flow, is suppling estimated data to the Board.
b. As a management accountant, the Wargo has the responsibilities to 1) Follow the instruction of the Board, 2) Maintain the appropriate level of professional leadership and expertise by updating his professional knowledge and skills, 3) to perform his professional duties according to the law and regulation while working within the Standards framework, 4) provide all the relevant information to the top level management and the Board / Investors, 5) to communicate fair and objective information to the management.
2) While refering to IMA Statement of Ethical Professional Practice, Mr. Wargo, being the Management Accountant, should do :
a) Follow the Board / Investor ‘s instructions to present Cash flow under the Direct Method.
b) Should update his knowledge as per the required by the Professional community.
c) Devote adequate time to get the informations for the direct method cash flow.
d) He must abide with the ethics of the Profession.
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