Yxor_ACCOUNTING 404a ETHICS CASES IN FINANCIAL MANAGEMENT June 18, 2012

Case No. 1.
Robyn Company is manufacturing and selling precision timing controller for aircrafts and high speed
machines. It has 10 stockholders who have been paid a total of P1 billion in cash dividends for 8 consecutive
years. The boards policy requires that, for this dividend to be declared, net cash provided by operating
activities as reported in the companys current years statement of cash flows must exceed P1 billion.
President and CEO, Ms. Robyns job is secure so long as she produces annual operating cash flows to support
the usual dividend.
At the end of the current year, Controller Ms. Debbie presents Ms. Robyn with some disappointing
news: The net cash provided by operating activities is calculated by the indirect method to be only
P970,000,000. The CEO says, Ms. Debbie, We must get that amount above P1 billion. Isnt there some way
to increase operating cash flow by another P30,000,000? Ms. Debbie answers, These figures were prepared
by my assistant. Ill go back to my office and see what I can do. The president replies, I know you wont let
me down, Ms. Debbie.
Upon close scrutiny of the statement of cash flows, Ms. Debbie concludes that she can get the
operating cash flows above P1 billion by reclassifying a P60,000,000, 2-year note payable listed in the financing
activities sections as Proceeds from bank loan------P60,000,000 and treat it as an adjustment of net income
in the operating activities section. He returns to the president, saying, You can tell the board to declare their
usual dividend. Our net cash flow provided by operating activities is P1,030,000,000. Good lady, Debbie! I
knew I could count on you, exults the president.
INSTRUCTIONS:
1. Who are the stakeholders in this situation?
2. Was there anything unethical about the presidents actions? Was there anything unethical about the
controllers actions?
3. Are the board members or anyone else likely to discover the misclassification?

Case No. 2. Is it wrong to tell a lie?
At the annual stockholders meeting, a senior financial manager is reviewing her companys financial
performance for the previous year. The news is not good. Sales dropped 30%, and profits are down 50%. A
stockholder asks the manager, What caused this drastic decline and has it been corrected? The manager
knows that the primary cause of the decline was a series of poor top-management decisions made over the
past several years, but she also knows that thats not what her colleagues want her to say. Furthermore, she
personally believes that the decline is far from over, but she recognizes that thats not what the stockholders
want to hear.
Should this financial manager lie? Is lying always wrong, or is it acceptable under certain
circumstances? What, if any, would those circumstances be? What do you think?

Case No. 3.
Robyn Transport Company operates out of three main routes in Northern Luzon. Recently, Debbie
Liner, Inc. began operating a trip from Baguio to Manila for P200. Robyn Transport Company offers a price of
P500 for the same route. The management of Robyn is not happy about Debbie invading its turf. In fact,
Robyn has driven off nearly every other competing bus company from its routes, so that today 90% of trips
into and out of Baguio are Robyn trips. Debbie is able to offer a lower fare because its drivers and conductors
are paid less, it uses older buses, and it has lower overhead costs. Debbie has been in business for only 6
months, and it services only two other cities. It expects the Manila route to be its most profitable.
Robyn estimates that it would have to charge P210 just to break even on this trip. It estimates that
Debbie can break even at a price of P170. Within one day of Debbies entry to the transport industry, Robyn
dropped its price to P150, whereupon Debbie matched its price. They both maintained this fare for a period of
9 months, until Debbie went out of business. As soon as Debbie went out of business, Robyn raised its fare
back to P500.
INSTRUCTIONS:
1. Who are the stakeholders in this case?
2. Do you think that this kind of pricing activity is ethical? What are the implications for the stakeholders
in this situation?