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Ethical Issues in Managerial Accounting

Ethical Issues in Managerial Accounting Sample Essay

Question 1

Elements of a Balanced Scorecard and How They Are Used

Raynus (2011) asserts that a balanced scorecard is the system of management that focuses on people holding in the organization towards the achievement of the long-term strategic objectives. The organization can translate its strategy into measurable and concrete goals that can be consistently applied and understood. These goals define the entire functional areas of the firm. Achievements of the operational perspectives that give the view of success are the primary elements that are presented in the balanced scorecard. The following are, therefore, the principal components of the balanced scorecard: The first component of a balanced scorecard is financial perspective. The financial element of the BSC demonstrates how the company is doing in terms of finance, with expenses and revenue. The financial consideration entails costs of benefit, taxes, rent, salaries, travel expenses, training, equipment, and supplies. The financial component data assists the manager in determining the methods and procedures for reducing the costs in some areas. For instance, the manager can decide that the benefits make a primary portion of the income and research more alternatives on the same. Subsequently, a change in the policy of traveling can result in less expense for air transport. The second element is customer perspective. Customer perspective entails fields such as delivery of the product, quick response to the issues of customers, as well as the satisfaction of the customers. The concerns of clients can involve the costs for the packaging and the shipping of the product, as well as quality of the product. The firm may then give more attention to these areas and make immediate necessary improvements. The third element is processes perspective. The processes part of the BSC focuses on the internal procedures that the company can use to get the job done. To determine the efficacy in terms of cost and time, areas such as information technology software and hardware can be considered. The firm is also required to detail and report the accounting functions of the rules of accounting. The manager can as well identify if the processes are offering the desired business results or not. These methods include staffing, maintaining employees, recruiting, and orientation. Last but not least is learning and growth element. This refers to how much the organization has learned and enhanced during its years of operation. The critical factors for reviewing this area are the morale and the satisfaction of the employees. Other areas may entail the continuous enhancement and change. The manager can work on the improvement of weaker areas by developing the substantial performance enhancement and training programs. Another strategy that may be practiced and identified by the scorecard includes the recognition programs and the establishment of the awards.

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Should EEC Adopt the Balanced Scorecard? Why?

I recommend that the EEC should adopt the Balance Scorecard system measures. The tests offer the top management a rapid but understandable view of the performance of the organization. It entails both the results and process measures. According to Kaplan and Norton (2006), a balanced scorecard can be compared to the indicators and the dials in the airplane’s cockpit. The task of flying an airplane is very complex. The pilot thus requires detailed information regarding the altitude, fuel, bearing, and airspeed, among other indicators that summarize the predicted and current environment. He cannot rely upon only one instrument. In the same way, managing an organization is complex, and it requires the managers to view performance simultaneously in several areas. The balanced set of measures will thus provide that valuable information to EEC Company. If adopted, a balanced approach to the workers’ performance appraisal is a crucial way of getting a full view of the work performance of the employee. The organization as a whole may fail to achieve its goals when only the actions and behaviors of the employees are measured. Using the BSC at organizational level, and then sharing the outcomes with the teams, supervisors, and employees, the managers provide the information required to align the employees’ performance plans with the goals of EEC. The picture of EEC will thus be complete by balancing the measures used in the employee performance plans.

Questions 2

Unethical Behavior That Can Result If the Wrong Performance Measures Are Used to Tie Performance Measures to Compensation

Kaplan and Norton (2006) assert that there is a practice of using multiple measures to evaluate compensation and performance. This issue can be sustained in a highly decentralized firm (Noe & Noe, 2012). The standard contested issue regarding this behavior is that the behavior economizes on the bounded rationality by means of focusing the attention on the financial results. The balanced scorecard that was implemented does not put economization on the bounded rationality. It merely consumed a significant deal of the people’s time.

How Can EEC Avoid Unethical Behavior?

Several ways can be employed by EEC to improve the business ethics in relation to performance measures on compensation of employees. Firstly, the firm can build ethics into the shared and ambition statement. Here, the emphasis is on the unselfishness. It involves the ethical values, principles, as well as the standards that are not limited to reliability, integrity, helpfulness, trust, frankness, among other values (Noe & Noe, 2012). This will assist the employees and the senior managers of EEC to understand that the ethical values are integral to the EEC Company and the activities in leisure time. Secondly, EEC can stimulate every person in the organization, most of them being the top managers, to formulate the BSC. The organization can then align their personal ambitions with their behavior. The firm can as well stimulate all the employees to the alignments at their homes. The employees can be made aware that their actions should not be in conflict with their personal behavior while at work, or anywhere else during their spare time. This will assist the workers of EEC to become better people in the organization, as well as away from it. The EEC can also avoid unethical behavior by committing to the ethical behavior. The top managers must openly and consistently commit to the ethical conduct by providing leadership that renews the values of the organization. Each of them within the organization must be made aware of the core values in the firm’s ambition, as well as their personal ambition. The commitment and involvement of personnel at all levels of the organization are crucial in order to develop higher levels of pride and trust in the business. The senior managers of EEC should take part in sessions of training; make ethics a regular component in their speeches and talks in presentations. They should also align their behavior with the ethical standards of the organization. They should engage in the process of ethics by creating an ethics board committee and place the values on the board agenda as a regular item for discussion. The EEC also needs to blend ethics in all the aspects of the company communication. The firm is required to develop programs for communication emphasizing on the corporate and personal ethics to motivate and inform the customers, suppliers, employees, the general public and the shareholders. The EEC also needs to leverage the infrastructure of the existing firm to demonstrate to the employees that ethics forms the integral part of the whole process of decision making and all the operations of the organization. EEC can also develop an ethics code. The code of business tells the managers and employees how to react in different situations. It also makes vivid to them that they are required to recognize the ethical dimensions of the firm actions and policies. The code also entails the requirements of the employees, where the leeway is permitted in the process of making decisions. The employees can report the possible violations, go for advice, and apply the code of ethics where the ethical issues cannot be negotiated. The systems are usually aligned with the values of the firm. The laws address the ethical dilemmas that the EEC employees face.

How Should EEC Tie the Measures of Performance to Compensation?

In order to match the measures of performance to compensation, the EEC needs to align the indicators in a way that clearly communicates the behavior standard to its workers. It should have a method of standardizing the reward that  it is going to offer the employees, and how that principle is going to be determined and measured. The indicators need to be measured whether or not they are going to be reflected in the financial statements of EEC. EEC, therefore, in order to tie the performance measures to compensation, should accomplish the following; First, it should seek to improve the performance of the organization. Secondly, it should create a focus through communication and reinforcement. It should also try to influence the behavior and lastly, encourage and engage a culture of ownership.

Who Is Responsible for Establishing the Performance Measures?

This question gains more gravity as organizations move towards non-traditional workforces. However, most of the compensation plans will comprise of all the permanent staff, with the exception of the seasonal, contract help, and the temporary employees (Kaplan and Norton, 2006). In the case of EEC, the top managers should work together with the middle managers, and the heads of the departments to establish a plan of tying performance measures to compensation of the employees.


Kaplan, R., & Norton, D. (2006). Alignment: How to apply the balanced scorecard to corporate strategy. Boston, MA: Harvard Business School. Noe, R., & Noe, R. (2012). Human resource management: Gaining a competitive advantage, (8th Ed). New York: McGraw-Hill Irwin. Raynus, J. (2011). Improving business process performance gain agility, create value and achieve success. Boca Raton: CRC Press.

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