Ethical Issues within the Field of Managerial Accounting
Classifying Costs Ethically
The following Course Outcome is assessed in this assignment:
GEL-7.02: Identify the ethical issues within the field of Accounting.
Introduction:
You practiced with various ethical issues in your discussion, and now you will put some of your analytical skills to work. Read the Ethics Case study CT1.5, involving classification of costs in an ethical manner, and then address the checklist items.
Scenario: Steve Morgan, controller for Newton Industries, was reviewing production cost reports for the year. One amount in these reports continued to bother him: advertising. During the year, the company had instituted an expensive advertising campaign to sell some of its slower-moving products. It was still too early to tell if the advertising campaign was successful.
There had been much internal debate as to how to report the advertising cost. The VP of Finance argued that advertising costs should be reported as a cost of production, just like direct materials and direct labor. He therefore recommended that this cost be identified as manufacturing overhead and reported as part of inventory costs until sold. Others disagreed. Morgan believed that this cost should be reported as an expense of the current period, so as not to overstate net income. Others argued that it should be reported as prepaid advertising and reported as a current asset.
The president finally had to decide the issue. He argued that these costs should be reported as inventory. His arguments were practical ones. He noted that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering. Also, by reporting the advertising costs as inventory rather than as prepaid advertising, less attention would be directed to it by the financial community.
Use the Internet, Purdue Global Library resources, and your textbook to discuss this ethical case.
In a 2- to 3-page paper, please respond to the following:
What are the ethical issues involved in this situation?
What is the correct way that advertising costs should be classified?
Identify the stakeholders in this scenario and discuss what you would do if you were Steve Morgan.
Write your responses in a Microsoft® Word® document and submit it to the Dropbox. This assignment is due on the last day of Unit 6.
Assignment Submission Requirements: Your written response must follow the following formatting guidelines: Use a Microsoft Word document, title page, double-spacing, 12-point Times New Roman or Arial font, 1-inch margins, current APA in-text citations and an APA reference page of at least two references (see the Unit 6 Reading area for assistance with APA). Page length requirements: 2–3 pages, not counting title page and reference page.
Submit your completed assignment to the Unit 6 Assignment Dropbox. Assignments are due Tuesday 11:59 p.m. ET of their assigned unit.
Reference
Weygandt, J. J., Kimmel, P. D., & Mitchell, J. E. (2021). Managerial accounting (9th ed.). Wiley.
Ethical Issues
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Ethical issues involved in the situation
Steve Morgan, a controller of Newton Industries, is faced with a question common in accounting in which ethics come into play. He is in a dilemma on where to report an advertising expense incurred in a bid to accelerate the sale of slower-moving products. Depending on where he makes the entries, they will have a more significant financial impact on the industry.
He is likely to commit sins of omission because he is under pressure to leave some things in the financial report. If he follows the president's directive to misrepresent numbers, it will be very wrong as it will not give the proper financial position of the industry. The president intends to use the false financial report to request a bond offer, and if Steve plays to his tune, investors will not be in a position to assess all the risks involved in giving the bond.
He is facing a conflict of interest in deciding where to report the expense; the VP of finance believes that the advertising costs are registered as a production cost and be identified as manufacturing overhead and recorded as inventory costs. As a financial controller, Steve believes that the costs are reported as an expense not to overstate the net income. A group also believes that the costs are a current asset. The president has input too, which is likely to influence his decision. Should he follow the president's advice, the VP of finance, or stand firmly on what is right?
He is under pressure on whether to keep the information about the industry's financial position confidential or not (Weygandt et al., 2021). The lenders need the e...