Pamela is faced with the dilemma of deciding between potentially saving the company $300,000 per year or saving people’s jobs. Specifically, Pamela must decide whether or not she should correct mistakes in a report prepared by her assistant controller. The purpose of the report is to help key stakeholders decide between two alternatives for supplying the company’s telecommunications needs. The assistant controller overlooked some avoidable fixed costs of operating the company’s telecom division. Fixed costs are defined as expenses that do not change as a function of the activity of a business. By including these costs, the company would save $300,000 per year by going with the proposal to outsource the telecom division. Outsourcing though would cause the elimination of the telecommunication department and several jobs.

The first primary stakeholder group that would have stake in Pamela’s decision is the executive management team at Murray Manufacturing. Decisions at this level impact the entire wellbeing and workforce of a company. Faced with a decision between two alternatives, the management team is reliant on the information in Pamela’s report to determine the best action for meeting business objectives. The management team would likely have internal controls that require Pamela to include the fixed costs and deliver a clear and accurate report.

The second primary stakeholder group would be the telecommunications department at Murray manufacturing. Potentially the department and its jobs could be eliminated based on the findings in Pamela’s report. The workers would consider their jobs and livelihoods much more important than saving $300,000.

The third stakeholder group would be the company’s shareholders. Typically interests of shareholders are equated with business profitability and share price. The average shareholder is not typically involved in the day-to-day operations of the company, therefore they are reliant on several parties to protect and further his or her interests. These parties include the company's employees, its executives and its board of directors. Pamela as an executive has a duty to report accurate information in order to protect shareholder interests.

The final primary stakeholder I would like to reference is Pamela herself. At Pamela’s level it is imperative that management have confidence in the integrity of the information she provides. If it was discovered Pamela presented false information it would seriously damage the executives trust in Pamela. This consequence could be career ending for Pamela.

One course of action that Pamela could take is fixing the errors in the report to include the $300,000 of avoidable fixed costs. By disclosing this information, the management team could fairly and objectively evaluate the alternatives. Having accurate information would allow them determine which alternative will best meet business objectives. This would also ensure that the interests of shareholders are protected. Disclosing the avoidable fixed costs could cause the executive committee to seriously consider eliminating the telecommunications department.

Another option Pamela could consider is ignoring mistakes in the initial analysis and submitting the report to the executives as is. This would seriously compromise the executive’s ability to make an informed and accurate decision. This would result in missed opportunity for the executives to find ways to save the company money and meet business objectives. With the company’s current financial struggles, further financial hardship could be detrimental to the careers of the executives. Also, this would have a direct impact on profitability and the shareholder’s interest. In the short-run though, Pamela would be able to protect the telecommunication department jobs.

The third option would be to include the $300,000 but do more research and analysis on these specific costs. Pamela stated that the $300,000 is from avoidable fixed costs, avoidable costs are expenses that can be avoided if a decision is made to alter the course of a business. Pamela could perform a cost-benefit balance on these avoidable costs, and then present them to the board.

Presenting the cost-benefit balance would allow the board to weigh the costs with the probable benefits. If they determined some of these avoidable costs could be eliminated, it would make the option of keeping telecommunications in house more competitive with outsourcing. I believe this solution presents the best consequences and outcomes for all stakeholders. The board would have the information they need to make a decision to meet business objectives. By presenting accurate information, Pamela would be protecting her integrity and shareholder’s interest. Also, this option would give the current telecommunications employees a fair chance to keep their jobs.

Placed in Pamela’s situation, I would correct the report and present accurate information to Larry Johnson and the board of executives. The main reason I would choose this action is based on three of the IMA’s standards of ethics that apply to this situation. Those standards are competence, integrity, and credibility.

The standard of competence states; decision support information and recommendations should be accurate, clear, concise, and timely. The standard of credibility also mentions that information should be communicated fairly and objectively. Credibility also goes on to say; all relevant information that could reasonably be expected to influence an intended user’s understanding of reports, analyses, and recommendations. Clearly both of these standards apply in this situation; Pamela is clearly obligated to report all information in an accurate manner.

A portion of Pamela’s dilemma stems from her romantic relationship with Roger the manager of the telecommunications project. This relationship is putting Pamela in a position where she is violating the standard of Integrity. The standard of Integrity states: Each member should mitigate actual conflicts of interest and they should advise all parties of conflicts of interest. Based on this standard, Pamela should not let her relationship with Roger affect her decision. Removing this conflict would allow Pamela to see the ethical decision is to fix the report to ensure the information is accurate.

In addition to protecting the ethical standards, another reason I would report accurate information is because it would lead to the best outcome for the business. Financially the company is currently facing some struggles. Failure to realize cost savings and meet business objectives could result in the company’s financial failure. Manipulating information to protect a group of people is wrong, especially when it can put the entire company in jeopardy. An extreme example of this is what occurred at Enron: accountants skewed the information to ensure financial reports looked better than the actual results. In the short-run this allowed some executives to keep their jobs, ultimately though the entire company failed and many innocent people lost their jobs.

The benefits of reporting accurate information substantially outweigh the risks. Primarily it is the ethical decision to make; it protects Pamela’s reputation in the company as a trusted advisor. Presenting accurate information ensures the best outcome for the business and its executives. Financially the company is facing financial hardship, it is imperative that misinformation does not prevent the company from realizing an opportunity to operate more efficiently. Submitting a complete and accurate report ensures an informed and objective decision that will protect shareholder’s interest.

Although there are a few risks in reporting the additional expenses, I do not believe they conflict with managerial accounting ethics. Primarily, reporting the information could cause some jobs to be eliminated. Pamela could mitigate this risk with deeper analysis of the additional costs, including a cost benefit balance. From an accounting standpoint, this would ensure she have met all of her ethical duties to the telecommunication workers. There is the apparent risk of straining her relationship with Roger. I do not believe this should be factored in Pamela’s decision because it is a personal risk and should not affect business decisions.

Once Pamela removes all personal conflicts of interest, the ethical decision to make is clear. This case clearly illustrates why people entrusted to make managerial accounting decisions should avoid conflicts of interests. If Pamela took a more proactive approach at mitigating this conflict of interest, it would have made the ethical decision much more clear.