Suspicious Acquisition of Data, Ethical Issues[1]

Brian Mills, manager of the WB Manufacturing, called a meeting with his controller, Brenda Peterson, and his marketing manager Paula Fritz. The following is a transcript of the conversation that took place during the meeting:

Brian: Brenda, the variable costing system that you developed has proved to be a big plus for our division. Our success in winning bids has increased, and as a result our revenues have increased by 25%. However, if we intend to meet this years profit targets, we are going to need something extraam I right, Paula?

Paula: Absolutely. While we have been able to win more bids, we still are losing too many, particularly to our major competitor, K3 Manufacturing. If we knew more about their bidding strategy, we could be more successful competing with them.

Brenda: Would knowing their variable costs help?

Paula: Certainly. It would give me their minimum price. With that knowledge, Im sure that we could find a way to beat them on several jobs, particularly on those jobs where we are at least as efficient. It would also help us to identify where we are not cost competitive. With this information, we might be able to find ways to increase our efficiency.

Brenda: Well, I have good news. Ive been talking with Kevin Smith, K3s assistant controller. Kevin doesnt feel appreciated by K3 and wants to make a change. He could easily fit into our team here. Plus, Kevin has been preparing for a job switch quietly copying K3s accounting files and records. Hes already given me some data that reveal bids that K3 made on several jobs. If we can come to a satisfactory agreement with Kevin, hell bring the rest of the information with him. Well easily be able to figure out K3s prospective bids and find ways to beat them. Besides, I could use another accountant on my staff. Brian, would you authorize my immediate hiring of Kevin with a favorable compensation package?

Brian: I know that you need more staff, Brenda, but is this the right thing to do? I have real ethical and legal concerns about this.

[1] Adapted from Case 14-53 p. 755; Cornerstones of Financial & Managerial Accounting, 2e by Rich, Jones, Heitger, Mowen, &Hansen; South-Western Cengage Publishing 2012; adopted for Academic Year 2011-12.

1. Is what Keven is doing at K3 Manufacturing (his current employer) the right thing to do? Why or why not?

2. The following questions refer to the IMA Statement of Ethical Professional Practice (found in your text after page 864). Answer the following questions in reference to Kevins behavior at his current employer:

Has Kevin violated Standard 1 Competence? Why or why not?

Has Kevin violated Standard 2 Confidentiality? Why or why not?

Has Kevin violated Standard 3 Integrity? Why or why not?

Has Kevin violated Standard 4 Credibility? Why or why not?