A widely recognized financial trick known as the "big bath" occurs when a company makes huge unwarranted asset write-offs that drastically overstate expenses. Outside auditors (CPAs) permit companies to engage in the practice because the assets being written off are of questionable value. Because the true value of the assets cannot be validated, auditors have little recourse but to accept the valuations suggested by management. Recent examples of write-offs include Motorola's $1.8 billion restructuring charge, Hewlett-Packard's $8 billion charge, and Microsoft's $7.6 billion charge. Required a. Why would managers want their companies to take a big bath? (Hint: Consider how a big bath affects return on investment and residual income in the years following the write-off.) b. Annual reports are financial reports issued to the public. The reports are the responsibility of auditors who are CPAs who operate under the ethical standards promulgated by the American Institute of Certified Public Accountants. As a result, attempts to manipulate annual report data are not restricted by the Institute of Management Accountants Statement of Ethical Professional Practice shown in Exhibit 1.17 of Chapter 1. Do you agree or disagree with these statements? Explain your position.EXHIBIT 1.17 Statement of Ethical Professional Practice Members of IMA shall behave ethically. A commitment to ethical professional practice includes overarching principles that express our values, and standards that guide our conduct. IMA's overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Members shall act in accordance with these principles and shall encourage others within their organizations to adhere to them. A member's failure to comply with the following standards may result in disciplinary action. Competence Each member has a responsibility to . Maintain an appropriate level of professional expertise by continually developing knowledge and skills. . Perform professional duties in accordance with relevant laws, regulations, and technical standards. . Provide decision support information and recommendations that are accurate, clear, concise, and timely. Recognize and help manage risk. Confidentiality Each member has a responsibility to . Keep information confidential except when disclosure is authorized or legally required. . Inform all relevant parties regarding appropriate use of confidential information. Monitor to ensure compliance.Confidentiality Each member has a responsibility to . Keep information confidential except when disclosure is authorized or legally required. . Inform all relevant parties regarding appropriate use of confidential information. Monitor to ensure compliance. . Refrain from using confidential information for unethical or illegal advantage. Integrity Each member has a responsibility to . Mitigate actual conflicts of interest and avoid apparent conflicts of interest. Advise all parties of any potential conflicts. . Refrain from engaging in any conduct that would prejudice carrying out duties ethically. . Abstain from engaging in or supporting any activity that might discredit the profession. . Contribute to a positive ethical culture and place integrity of the profession above personal interests. Credibility Each member has a responsibility to . Communicate information fairly and objectively. . Provide all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations. . Report ary delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law. . Communicate professional limitations or other constraints that would preclude responsible judgment or successfulCredibility Each member has a responsibility to . Communicate information fairly and objectively. . Provide all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations. . Report any delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law. . Communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. Resolution of Ethical Conflict In applying the Standards of Ethical Professional Practice, the member may encounter unethical issues or behavior. In these situations, the member should not ignore them, but rather should actively seek resolution of the issue. In determining which steps to follow, the member should consider all risks involved and whether protections exist against retaliation. When faced with unethical issues, the member should follow the established policies of his or her organization, including use of an anonymous reporting system if available. If the organization does not have established policies, the member should consider the following courses of action: . The resolution process could include a discussion with the member's immediate supervisor. If the supervisor appears to be involved, the issue could be presented to the next level of management. . IMA offers an anonymous helpline that the member may call to request how key elements of the IMA Statement of Ethical Professional Practice could be applied to the ethical issue.organization policy and/or applicable law. . Communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. Resolution of Ethical Conflict In applying the Standards of Ethical Professional Practice, the member may encounter unethical issues or behavior. In these situations, the member should not ignore them, but rather should actively seek resolution of the issue. In determining which steps to follow, the member should consider all risks involved and whether protections exist against retaliation. When faced with unethical issues, the member should follow the established policies of his or her organization, including use of an anonymous reporting system if available. If the organization does not have established policies, the member should consider the following courses of action: . The resolution process could include a discussion with the member's immediate supervisor. If the supervisor appears to be involved, the issue could be presented to the next level of management. . IMA offers an anonymous helpline that the member may call to request how key elements of the IMA Statement of Ethical Professional Practice could be applied to the ethical issue. . The member should consider consulting his or her own attorney to learn of any legal obligations, rights, and risks concerning the issue. If resolution efforts are not successful, the member may wish to consider disassociating from the organization