The Role of Finance in the Hospitality Setting: “Accounting Principles & Ethics”

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Scenario:  

A restaurant manager has a contract with the restaurant’s owner that he is entitled to eat meals in the restaurant without charge when on duty. The manager lives in a rented apartment above the restaurant with his wife and two children. Generally, the family members eat their meals in the restaurant every day of the week. No sales or other records make note of the consumed meals.

Discuss the ethics of this situation based on the two accounting principles that are being violated?

From this perspective, an important consideration that a manager has to bear in mind is the way that he/she maintains their integrity and conducts himself/herself in front of others. It is through this professional knowledge and skills that ethics are maintained, which “refers to the choices of proper conduct made by an individual in his or her relationship with others”(Dopson & Hayes, 2008). Ethics in accounting management enshrines the values of “competence”, “confidentiality”, “integrity”, “objectivity”, “honesty”, “duty of care”, “trust” and avoiding “maleficence” entirely. Hence, the main purpose of hospitality accounting demands that each manager prepares and presents their financial information in such a way that is both legal and ethical.

It is clearly understood that the restaurant manager has signed a contract with the restaurant owner through which the manager is entitled for eating free meals while on duty. Since the manager lives in the rented apartment above the restaurant with his wife and two children, he has made it a habit that the family eats their meals in the restaurant every single day of the week and thus no sales or records are made of the consumed meals. This is completely unethical and illegal since the manager has completely exploited the whole situation, making full use of the privilege granted through the contract. Therefore, in such a case, there are two accounting principles that are violated here, including the “Objectivity Principle” and the “Conservatism Principle” respectively.

According to the Objectivity principle, “financial transactions must have a confirmable (objective) basis in fact” through which it can be easily verified that a financial transaction has actually taken place before being recorded in the business’s financial records. The manager has clearly violated this accounting principle because no sales or records have actually been made for the meal’s consumed by the manager’s family and this in turn is completely unethical. It is a very good practice for the restaurant owner to provide meals for the staff including the manager as this is time-saving and motivating in providing efficient service and maintaining a good environment of the restaurant. In this case, however, there has been a breach of trust as the manager is making full use of his appointed position due to which there is no accountability of the meals consumed by his family. Therefore, there has been a lot of misinterpretation and inaccuracy in the reporting of the business’s financial records which is mainly due to the “inappropriate recognition of revenue”. The standards of reporting the financial transaction in the business records should be the same for the manager’s family, the way it goes for every single customer dining in the restaurant.

The second accounting principle violated here is the Conservatism principle which “requires the accountants of a business to be conservative when reporting its revenue (and thus not to report it until it is actually earned) and realistic when reporting its expense and other liabilities”. In this case, the transaction of these meals had never been approved as perks to the Manager. This principle further goes a step ahead of the objectivity principle because until the time the financial transactions of the business are not accurately reported in the financial records, the accountants for that particular restaurant cannot realistically report its revenue earned in the restaurant and act conservative in nature.

Therefore, this scenario clearly shows the malpractice of the restaurant manager and the violation of these two accounting principles.

Reference List  

 1. Dopson, LR, Hayes, DK 2008, Managerial Accounting for the Hospitality Industry, 1st Edition, John Wiley & Sons, Inc., Hoboken, New Jersey. 

2. McDonald, G 2015, Business Ethics: A Contemporary Approach, 1st Edition, Cambridge University Press, Port Melbourne, Victoria. 

3. Duska, R, Duska, BS, Ragatz, JA 2011, Accounting Ethics, 2nd Edition, Wiley-Blackwell. 

Photography Website – angadarora (viewbug.com) 

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