Reference no: EM132795125

Problem - Tonya Latirno is a staff accountant for Cannally and Kennedy, a local CPA firm. For the past 10 years, the firm has given employees a year-end bonus equal to two weeks' salary. On November 15, the firm's management team announced that there would be no annual bonus this year. Because of the firm's long history of giving a year-end bonus, Tonya and her co-workers had come to expect the bonus and felt that Cannally and Kennedy had breached an implicit agreement by discontinuing the bonus. As a result, Tonya decided that she would make up for the lost bonus by working an extra six hours of overtime per week for the rest of the year. Cannally and Kennedy's policy is to pay overtime at 150% of straight time.

Tonya's supervisor was surprised to see overtime being reported, because there are generally very little additional or unusual client service demands at the end of the calendar year. However, the overtime was not questioned, because employees are on the "honor system" in reporting their work hours.

1. Is Cannally and Kennedy acting in an ethical manner by eliminating the bonus? Explain your answer.

2. Is Tonya behaving ethically by making up the bonus with unnecessary overtime? Why?