Jan Brown can remember discussing the Standards of Ethical Conduct for Management Accountants in detail as a student. From these discussions, Brown remembers professors stating that many events in their professional careers were going to be maybe situations depending on the circumstances rather than straight yes or no decisions. Brown especially remembers these past discussions after reviewing the president’s latest expense report.

Brown has never seen Division President Ron Smith’s employment contract, but each time Brown questions Smith about a lavish expense, such as entertainment or contributions, Smith repeatedly tells Brown that the lavish entertainment reimbursements are part of an approved compensation package. Smith also justifies some of the entertainment as a cost incurred in interviewing potential employees. Moreover, at frequent intervals Smith expresses the strong opinion that all companies owe their presidents some leeway in documenting expenditures if these presidents have made significant contributions in the past in building their organizations to profitable market positions.

Following the president’s directions, Brown approved the disbursements in the past.

However, recently these expenses are increasing at an even higher rate. Now, instead of true entertainment vouchers, Brown is beginning to see invoices for luggage, expensive clothing, household furnishings, and other nonbusiness, personal items. Occasionally, Brown questions the appropriateness of the expense. The president insists that the corporate officers only look at the divisional profits, and they agree that such items are fringe benefits.

Thus, Smith tells Brown to pay for such expenses. Fortunately, demand for the company’s product is high and the division is profitable despite the large travel and entertainment expenditures.

Required:

How much padding of expenses is acceptable, if any? How can accountants protect themselves in this regard? Does using the firm’s telephone for personal calls or the company’s copying machine for personal duplication make a person a thief? What about taking pencils and stationery home for personal use?