You have been hired as a consultant to analyze the production job costs for a prestigious financial services company. Your analysis reveals that many tasks that were subcontracted out at cheaper rates in another country were deemed to be of inferior quality. Moreover, the single average rate used to apply overhead to these cheaper direct labor rates did not seem to correlate with the costs of specific jobs. You discuss your findings with a senior member of management. His response is that in the long run, all costs average out and it is important to be competitive in the short run to gain market share. Moreover, he explains that it is not illegal or against any specific accounting rule and, therefore, not unethical to use cheaper labor or to allocate costs based on those cheaper labor rates. 

In Chapter 1, you learned that the Institute of Management Accounting’s Standards of Ethical Professional Practice call for competence, confidentiality, integrity, and credibility. Identify and discuss which standards of ethical conduct you believe could be compromised by management and you in this scenario. Be specific. What other information would you want to know? What should you do?