Ethics. Joseph Rodriquez is the controller of the Ceramics Division (CD) of Northeastern Company. Rodriquez reports directly to the CD general manager, Susan Czeisla. One of Rodriquez’s responsibilities is obtaining data from all CD department managers to pre¬ pare annual budgets. The current year’s budget reflects a CD sales increase of 8% over last year, compared with the usual 4% to 6% annual sales increases experienced in the past. The CD sales manager has assured Rodriquez that the 8% increase is attainable, and the CD production manager has pointed out that the plant operated at only 75% of capacity last year, so ample production capacity is available to sustain the planned sales increase.

At the end of the first quarter of the current year, CD sales were 1% below budget. Rodriquez was then instructed by Czeisla to revise the budget to reflect a 12% sales increase over last year. Rodriquez expressed surprise at this request but was assured by Czeisla that, “our salespeople can produce a 12% increase over last year, and the budget should show it that way. . . . The budget must show it that way to help us convince the bank that we’ll be able to repay the loan we’ll be applying for in the second quarter.” With this assurance, Rodriquez revised the budget to reflect the 12% increase.

At the end of the second quarter, CD sales were 3% below the revised budget. Czeisla instructed Rodriquez to revise the budget again, this time to reflect a 14% sales increase over last year. “In preparing our application for the bank loan, we found the figures weren’t coming out quite right for the loan amount we need. We’ll be apply¬ ing at a different bank now, and the 14% sales increase will take care of the problem with the figures. I’ve been assured by our salespeople that if a 14% increase is what the company needs, then they can give me 14%, so that’s what we’re going to do. They’re team players, Joseph, and I know you’ll be a team player, too.”

Required:

(1) Which of the 15 responsibilities in the Standards of Ethical Conduct for Management Accountants apply to Rodriquez’s situation?

(2) What might Rodriquez have done differently to avoid or mitigate this problem?

(3) In addition to his ethical responsibilities to CD, what other ethical responsibilities does Rodriquez need to consider?