Background Paper of Pirate Steel Company

The Pirate Steel Company is in the steel producing industry that manufactures in the United States. The Pirate Steel Company sells its products in the United States and many other nations abroad. Pirate Steel was considered a leader in its industry and maintained high standards of achievement until foreign competition began to affect their profitability. Though Pirate Steel has never been very cost conscience in production operations, the increases in material, labor, and other inventories has made a deep impact in Pirate Steel†s view on minimizing costs. With an increase in production costs, the selling price of the company†s manufactured goods increased as well. This increase in prices had to be closely monitored due to competition. With new regulations on production expenses, the people in production, like the foreperson and the manager, had the entire burden on them since they had to justify all repair and maintenance expenditures. With new procedures, every work order form had to be exaggerated so that it seemed necessary for repair and maintenance expenditures. Since the work order forms were exaggerated, the accountant found that these requests were filled with misleading information. All expenses were recorded properly, but an external auditor might question the fictionalized reports. The ethical dilemma of Pirate Steel Company is that the foreperson devised a strategy to get maintenance and repair orders approved by providing misleading information about the extent of the reports. The work order forms seemed to imply that new equipment was bought each time a repair was needed. With this type of fictionalized information given, the external auditors may question the accounting methods pertaining to repair and maintenance. The stakeholders in this situation are the foreperson, the accountant, customers, shareholders, management, and the executives. The foreperson was the one who initially created the plan of falsifying information about repair and maintenance needs. He did this because of fear that any job delays, due to failure of machinery, would be blamed on him. The accountant is also responsible because he must decide how he must approach this situation from an ethical standpoint. There are many options for him to choose, but only one is correct. The Utilitarian Theory emphasizes on how the consequences of an action affect the individuals involved. This is a theory of balancing negative social actions and benefits to minimize the negatives and maximize the benefits. The Utilitarian Theory would be applied as Faze approached the chief executive officer of Pirate Steel and requests that he evaluates the new cost control policy and the actions being taken with it. Faze should explain that the descriptions of the work orders should be evaluated for honesty. He should tell the CEO that if these patterns continue, it might have a negative effect on the company†s progress. The CEO should then sit with Faze and devise a more efficient plan. The Theory of Rights states that each person should be treated as fairly as possible and that others have the obligation to treat everyone equally as a sense of moral duty. The Theory of Rights could be applied in this situation allowing the accountant to overlook this minor problem because he feels that this process is the most efficient way for the company to operate. Faze must go to the production manager and let him know that the fictionalized work orders will not affect the company in the short run, but in the long run they might pose a potential loss in income due to excess expenditures in repairs and maintenance. The Theory of Justice involves equity, fairness, and impartiality. These major components are used in the way that individuals are affected by their treatment. The Theory of Justice could be applied to the situation by employees approaching the production management and demanding that the work order forms be much easier to be approved. The employees think that too much effort must be put into filling out request for repairs and maintenance. The employees also know that if their requests are not fictionalized, they will have a hard time receiving the approval for those mandatory repairs. The company should look to implement a program that will allow the employees to be able to develop the skill required to properly complete the work order forms. They should also look to perform their jobs in a way that will follow all of the rules and laws that would be applied to the situation. With these revisions in procedure, the company should be able to prepare reports with accurate information. The company will need to use a system that will allow information to be communicated fairly. The information that is included in these reports should be recorded in a way that is not intended to negatively persuade the user to get the wrong impression of the writing. These changes must be made because the company†s cost control policy is not good from an operational point of view with the requirements needed for a work order form to get approved. Faze will need to schedule a meeting between the CEO, the production manager, the accountant, and himself to be able to clearly ! illustrate the manner in which the work order forms should be completed. He would also use this opportunity to discuss any other improvements to the system that could be implemented. After this meeting, each individual could go to their respective departments and relay the message of how things have been changed. The solution to Pirate Steel†s dilemma is for Faze to maintain competence. He must keep the level of professionalism by performing the activities of the company with respect to the regulations that must be followed. The controller must also inform the production manager that the actions taken can be harmful to the company. He should maintain this level of professionalism and begin to prepare the proper reports after analyzing the information given. Faze should also develop a guide to help employees prepare reports for work orders in a responsible manner. The solution to the Pirate Steel Company†s dilemma is by Faze using objectivity. By using objectivity, Faze will be able to communicate the information fairly and unbiased. Also, the controller must disclose all information that would sway the opinion of an interested user. Disclosing this information will give all the outsiders a better understanding of all paperwork and recommendations that are presented. To show competence in the workplace, the workers must be able to continually develop skills that will improve all aspects of their job. Then they must perform all of their duties and still stay in accordance with the rules and regulations that are involved with their field, and be able to prepare reports that are accurate and honest so that they can be interpreted as they are printed. Everyone must do these things to show their reliability. One example of showing reliability is shown in this quote stated â€Å"To be reliable, information must have representational faithfulness and it must be verifiable and neutral. Accounting information may not represent faithfully what it purports to represents because it has one or both of two kinds of bias (The Accounting Review, 2000, 229).† When a worker is showing objectivity they must prove that they can communicate information in a way that others can understand it and not be persuaded to use misleading information in decision making. This quote shows an example of objectivity: â€Å"To address earnings management concerns, the NYSE, Amex, ASB, and the SEC individually adopted rules and standards focusing on the composition and activities of audit committees. Regulators hope the rules will improve the quality of financial reporting and make it harder for corporations to manipulate the data on which their reported earnings are based (Journal of Accountancy, 2000, 15).†