Reference no: EM132707164
Problem - Ethics and Professional Conduct in Business
The director of marketing for Truss Industries Inc., Ellen Knutson, had the following discussion with the company controller, Bud Wyckoff, on February 26 of the current year:
Ellen: Bud, it looks like I'm going to spend much less than indicated on my February budget.
Bud: I'm glad to hear it.
Ellen: Well, I'm not so sure it's good news. I'm concerned that the president will see that I'm under budget and reduce my budget in the future. The only reason that I look good is that we've delayed an advertising campaign. Once the campaign hits in May, I'm sure my actual expenditures will go up. You see, we are also having our sales convention in May. Having the advertising campaign and the convention at the same time is going to kill my May numbers.
Bud: I don't think that's anything to worry about. We all expect some variation in actual spending month to month. What's really important is staying within the budgeted targets for the year. Does that look as if it's going to be a problem?
Ellen: I don't think so, but just the same, I'd like to be on the safe side.
Bud: What do you mean?
Ellen: Well, this is what I'd like to do. I want to pay the convention-related costs in advance this month. I'll pay the hotel for room and convention space and purchase the airline tickets in advance. In this way, I can charge all these expenditures to February's budget. This would cause my actual expenses to come close to budget for February. Moreover, when the big advertising campaign hits in May, I won't have to worry about expenditures for the convention on my May budget as well. The convention costs will already be paid. Thus, my May expenses should be pretty close to budget.
Bud: I can't tell you when to make your convention purchases, but I'm not too sure that it should be expensed on February's budget.
Ellen: What's the problem? It looks like "no harm, no foul" to me. I can't see that there's anything wrong with this-it's just smart management.
How should Bud Wyckoff respond to Ellen Knutson's request to expense the advanced payments for convention-related costs against February's budget-related costs against February's budget?