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Answered) You are the new controller for the wholesaler division of 321 Company.


You are the new controller for the wholesaler division of 321 Company. In the past five years, 321’s earnings have grown by at least 15% annually, with the wholesaler division’s earnings growing by over 20% annually over the same time-period. In the 4th quarter of the current year, however, it is projected that wholesaler’s income will grow by 8% and 321’s will grow by 10%. The wholesaler division’s president wants you to take some of the following “end of the year” actions in order to improve its reported earnings. Under the previous controller, these types of actions were more or less taken as acceptable practices.

  1. Reducing the number of December advertising spots and increasing the number to be run in January.
  2. Giving salespeople a double bonus to exceed December targets.
  3. Extending the close of the fiscal year beyond December 31 so that some sales from next year are counted in the current fiscal year.
  4. Persuading customers to accept merchandise for shipment in December that they would normally not order until the following year.
  5. Altering dates on shipping documents so that sales made in January of the next year appear to have occurred in December of the current year.
  6. Deferring advertising costs by asking the outside advertising agency to delay sending out bills for December advertisements until January or by having the agency indicate that advertisements run in December were run in January.
  7. Defer performing routine monthly maintenance on equipment by an outside vendor until January.


a)  Classify each of these possible actions as “acceptable” or “unacceptable” according to the IMA Standards of Ethical Behavior for Practitioners of Management Accounting and Financial Management. Be sure to justify / explain your classifications.

b)  What should you do if the president suggests that these actions are taken in every division of 321 and that the wholesaler division will be greatly harmed if it does not present “better” results than 8% growth?

 


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