Gutierrez Company, a publicly held corporation, operates a regional chain of large drugstores. Each drugstore is operated by a general manager and a controller. The general manager is responsible for the day-to-day operations of the store, while the controller is responsible for the budget and other financial tasks. The general manager, Tracie Kappan, has been at Gutierrez Company for several years. Employee turnover is high at Gutierrez Company, just as it is in the retail industry in general. Kappan just hired a new controller, Min Yang.

Yang was asked to prepare the master budget. Each retail location prepares its master budget once a year and then submits that budget to company headquarters for approval. Once approved by headquarters, the master budget is used to evaluate the stores performance. These performance evaluations directly affect the managers bonuses and whether additional company funds are invested in that location.

When Yang was almost done preparing the budget, Kappan instructed him to increase the amounts budgeted for labor and supplies by 20%. When asked why, Kappan responded that this budgetary cushion gives store management flexibility in running the store. For example, because company headquarters tightly controls operating funds and capital improvement funds, any extra money budgeted for labor and supplies can be used to replace store furnishings or to pay bonuses to help to retain good employees. She explains that the chance of getting extra funds from company headquarters is not good; this cushion is usually the only opportunity to replace store dcor or to pay bonuses to key employees. Kappan also needs extra funds occasionally to make under the table payments to employees as incentives to work extra hours or to keep them from leaving for a higher-paying job.

What are the ethical issue(s) in this situation and the ethical standards violated? Be sure to explain the issue or circumstance that led to the violation.

What are Yangs responsibilities as a management accountant?

Would your answer differ if Gutierrez Company were instead owned by one individual instead of being publicly held? Why or why not?