In a survey published in 1990, 649 managers responded to a questionnaire and ETHICS AND QUALITY provided their opinions from an ethical perspective as to the acceptability of DISCUSSION manipulating accounting earnings to achieve higher managerial compensation.

One of the questions dealt with the acceptability of changing a sales practice to pull some of next year’s sales into the current year so that reported current earnings could be pushed up. The results of the survey indicated that about 43 percent of the respondents felt this practice was ethically acceptable, 44 percent felt the practice was ethically questionable, and 13 percent felt the practice was ethically unacceptable.

Other results of the survey indicate the managers felt large manipulations were more unethical than small manipulations, and income-increasing manipu¬ lations were more ethically unacceptable than income-decreasing manipulations.

[SOURCE: Adapted from William J. Bruns and Kenneth A. Merchant, “The Dangerous Morality of Managing Earnings,” Management Accounting (August 1990), pp. 22-25. Reprinted from Management Accounting. Copyright by Institute of Management Accountants, Montvale, NJ.]

a. If managers are able to manipulate earnings to effect a change in their pay, is this a signal of a weakness in the pay-for-performance plan? Explain.

b. In your view, does the materiality of a manipulation partly determine the extent to which the manipulation is ethically acceptable?

c. Describe any circumstances in which you believe manipulations would be ethically acceptable.