BYP 4-7 Ethics Case

Subject: Business    / Finance    

Question

BYP 4-7 Ethics Case

As the controller of Take No Prisoners Perfume Company, you discover a misstatement that overstated net income in the prior year's financial statements. The misleading financial statements appear in the company's annual report which was issued to banks and other creditors less than a month ago. After much thought about the consequences of telling the president, Mike Flanary, about this misstatement, you gather your courage to inform him. Mike says, “Hey! What they don't know won't hurt them. But, just so we set the record straight, we'll adjust this year's financial statements for last year's misstatement. We can absorb that misstatement better in this year than in last year anyway! Just don't make such a mistake again.”

Instructions

(a)

Who are the stakeholders in this situation?

(b)

What are the ethical issues in this situation?

(c)

What would you do as a controller in this situation?

BYP 6-7 Ethics Case

R. J. Graziano Wholesale Corp. uses the LIFO method of inventory costing. In the current year, profit at R. J. Graziano is running unusually high. The corporate tax rate is also high this year, but it is scheduled to decline significantly next year. In an effort to lower the current year's net income and to take advantage of the changing income tax rate, the president of R. J. Graziano Wholesale instructs the plant accountant to recommend to the purchasing department a large purchase of inventory for delivery 3 days before the end of the year. The price of the inventory to be purchased has doubled during the year, and the purchase will represent a major portion of the ending inventory value.

Instructions

(a)

What is the effect of this transaction on this year's and next year's income statement and income tax expense? Why?

(b)

If R. J. Graziano Wholesale had been using the FIFO method of inventory costing, would the president give the same directive?

(c)

Should the plant accountant order the inventory purchase to lower income? What are the ethical implications of this order?


The solution file needs to contain 400-600 words