Ethics Of Master Budgets

According to the accounting course, master budgets are a set of budgeted financial statements and supporting schedules for an entire organization that includes three types of budgets: the operating budget, the capital expenditure budget, and the financial budget. Managers of an organization use this financial plan to coordinate business activity. Whether large or small, financial decisions require planning and failure to formalize plans often result in failure to achieve financial goals. There are multiple employees who gather this information and it is crucial for them to understand the importance of remaining ethical in their planning. According to my accounting course, they define ethics as “a code of conduct or set of beliefs that dictate

The financial budget includes the cash budget and financial statements; therefore, since budgets are used for planning decisions, it is important to make ethical choices even if it means an employee may not receive a bonus. Some companies will provide end of year bonuses to managers if they exceed sales goals. However, even though this is set in place to encourage managers to strive at improving sales, it could also cause managers to remain unethical. For example, if a manager receives a large order for the following year, but does not tell his manager about the order because it will most likely help him exceed the company’s sale goal next year, it could lead to negative repercussions when the production department cannot deliver the order as promised. Therefore, it is important to use every detail when planning, because a career will become compromised when their employer discovers unethical

Therefore, it is important for managers to plan a proper budget for items that fall under these categories, otherwise this will cause the company to overpay on certain purchases, or spend money on unplanned projects. According to the article “Fired manager claims PNM padded San Juan expenses,” by Kevin Robinson-Avila (Robinson-Avila, 2015), after plant manager Gregory Smith was fired, he filed a complaint against Public Service Co. of New Mexico. One of his allegations was that Public Service Co cut the operating and maintenance budget at its coal-fired power plant to “boost profits, causing outages that led to PNM to purchase more expensive electricity from other sources and pass the cost on to ratepayers” (Robinson-Avila, 2015). PNM wanted to implement the budget decrease because they planned on having less revenue due to the expected cooler summer. In addition, PNM wanted to keep their capital expenditure budget the same, even though this particular budget is budgeted based on planned maintenance outages, and they had fewer outages due to the decrease in planned shutdowns. Because of the decrease, it forced smith and his team to sink money into “unplanned, marginal projects, like repaving roads around the plant” (Robinson-Avila,