In a survey, 649 managers responded to a questionnaire and provided their opinions from an ethical perspective as to the acceptability of manipulating accounting earnings to achieve higher managerial compensation. One of the questions dealt with the acceptability of changing a sales practice to pull some of next year’s sales into the current year so that reported current earnings could be pushed up. The results of the survey indicated that about 43 percent of the respondents felt this practice was ethically acceptable, 44 percent felt the practice was ethically questionable, and 13 percent felt the practice was ethically= unacceptable. Other results of the survey indicate the managers felt large manipulations were more unethical than small manipulations, and income increasing manipulations were more ethically unacceptable than income decreasing manipulations.
a. If managers are able to manipulate earnings to effect a change in their pay, is this a signal of a weakness in the pay for performance plan? Explain.
b. In your view, does the materiality of a manipulation partly determine the extent to which the manipulation is ethically acceptable?
c. Describe any circumstances in which you believe manipulations would be ethically acceptable.