A typical executive is in his mid 40’s, frequently travels on business, says he values “self respect,” and is very likely to commit financial fraud. That, anyway, is the conclusion of four business school professors, whose study on fraud was published in the February issue of the Journal of Business Ethics. After getting nearly 400 people (more than 85% of them men) over the past seven years to play the role of a fictional executive named Todd Folger, the professors found that 47% of the top executives, 41% of the controllers and 76% of the graduate level business students they surveyed were willing to commit fraud by understating write offs that cut into their companies’ profits.
a. What creates the incentive for managers to understate write offs?
b. How does the use of accounting as a performance measurement system of managers affect the objectivity of accounting information?
c. What are the ethical obligations of accountants in dealing with managers who desire to manipulate accounting information for their personal benefit?