Question

Ethics Paper -Topic 1 It's Slow Moving Inventory Topic: Asset Valuation/Write-Downs Jasmine is the first Controller ever hired at a medium-sized technology company. The firm has reacquired computers and other parts and equipment from high-tech firms who filed for bankruptcy or were seriously behind in their monthly payments during a recent two- year downturn in the economy. In addition, the firm has acquired some miscellaneous inventory from competitors experiencing the same misfortune. One of Jasmine's initial goals is to determine how accurately the inventory on the books reflects its fair market value. As she walks with Marcus, the inventory control clerk, through all the equipment and inventory pallets, she notices that numerous parts and machines look dated, and dusty. Marcus informs her that while only about a third of these items are repossessions, most are from overruns or the recession; "many have been sitting on these skids for years." As Jasmine inquires further, it appears that this problem is extensive, and that this inventory moves slowly. When the inventory does sell, it is at a significant discount. Raina, the Sales Manager, indicates that these are really tough times to sell this stuff, especially because most of the "slow movers" are large-ticket items. In fact, Raina feels sorry for her sales staff since they have been forced by the company president to push these items with only 2 percent more in commission. Finally, Jasmine approaches Terry, the Company President, about this problem and asks what he intends for her to do about the dilemma. Terry informs her that he believes that many of these items are salable given appropriate marketing and the right economic conditions. Besides, some of his major customers owe him a few favors. Terry also indicates that now is not the right time for the company to take a hit from inventory revaluation. During the ensuing months, Jasmine did not see much movement from these stacks. She again approached Terry and asked how he would address this issue when the audit came. Terry reiterated his former response regarding product salability and stressed actual sales across all product lines to the auditors. He asked Jasmine not to point out this problem to the auditors and finally said, "just see if they notice it. And if they start nosing around in it, I hope you'll be able to show them that some of these items are turning over." Jasmine interpreted Terry as saying she should help falsify records if it looked like the auditors were discovering the slow movers, Jasmine didn't know what she would do next.

auditing ehtics paper . whats wrong with the situation?

Answer 1

There are various problems with the situation. Company president is not adhering to its duty of loyalty, as he is working in favor of the customers, as these customers owe him favors. He is ignoring the fact, sales team is not promoting sales properly, so that goods could be sold at huge discounts, which brings down profitability of the organisation. Tone at the Top is not conducive for proper functioning of internal controls, as company president is himself not working in line with organisational objective. He is more inclined in reflecting wrong figures related to products, so that these can be sold at lower prices in future. There is also a problem with physical verification of equipment, which have not been physically verified for a while, which could lead to a material issue in financial statements of the organisations.