Ethics Case 13-17 Profits guaranteed LO13-5 This was Joel Craig's first visit to the controller's corner office since being recruited for the senior accountant position in May. Because he'd been directed to bring with him his preliminary report on year-end adjustments, Craig presumed he'd done something wrong in preparing the report. That he had not was Craig's first surprise. His second surprise was his boss's request to reconsider one of the estimated expenses. S & G Fasteners was a new company, specializing in plastic industrial fasteners. All products carry a generous long-term warranty against manufacturer's defects. "Don't you think 4% of sales is a little high for our warranty expense estimate?" his boss wondered. "After all, we're new at this. We have little experience with product intro- ductions. I just got off the phone with Blanchard (the company president). He thinks we'll have trouble renewing our credit line with the profits we're projecting. The pressure's on." Required: 1. Should Craig follow his boss's suggestion? 2. Does revising the warranty estimate pose an ethical dilemma? 3. Who would be affected if the suggestion is followed?

Ethics Case 13-17 Profits guaranteed LO13-5 This was Joel Craig's first visit to the controller's corner office since being recruited for the senior accountant position in May. Because he'd been directed to bring with him his preliminary report on year-end adjustments, Craig presumed he'd done something wrong in preparing the report. That he had not was Craig's first surprise. His second surprise was his boss's request to reconsider one of the estimated expenses. S & G Fasteners was a new company, specializing in plastic industrial fasteners. All products carry a generous long-term warranty against manufacturer's defects. "Don't you think 4% of sales is a little high for our warranty expense estimate?" his boss wondered. "After all, we're new at this. We have little experience with product intro- ductions. I just got off the phone with Blanchard (the company president). He thinks we'll have trouble renewing our credit line with the profits we're projecting. The pressure's on." Required: 1. Should Craig follow his boss's suggestion? 2. Does revising the warranty estimate pose an ethical dilemma? 3. Who would be affected if the suggestion is followed?

Accounting (Text Only)

26th Edition

ISBN:9781285743615

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter11: Current Liabilities And Payroll

Section: Chapter Questions

Problem 11.2CP

See similar textbooks

Similar questions

Materiality Joseph Knapp, a newly hired accountant wanting to impress his boss, stayed late one night to analyze the office supplies expense. He determined the cost by month for the previous 12 months of each of the following: computer paper, copy paper, fax paper, pencils and pens, notepads, postage, stationery, and miscellaneous items. Required What did Joseph think his boss would learn from this information? What action might be taken as a result of knowing it? Would this information be more relevant if Joseph worked for a hardware store or for a real estate company? Discuss.
Ethics and professional conduct in business Tonya Latirno is a certified public accountant (CPA) and staff accountant for Kennedy and Kennedy, a local CPA firm. It had been the policy of the firm to provide a holiday bonus equal to two weeks salary to all employees. The firms new management team announced on November 15 that a bonus equal to only one weeks salary would be made available to employees this year. Tonya thought that this policy was unfair because she and her coworkers planned on the full two-week bonus. The two-week bonus had been given for 10 straight years, so it seemed as though the firm had breached an implied commitment. Thus, Tonya decided that she would make up the lost bonus week by working an extra six hours of overtime per week over the next five weeks until the end of the year. Kennedy and Kennedys policy is to pay overtime at 150% of straight time. Tonyas supervisor was surprised to see overtime being reported, because there is generally very little additional or unusual client service demands at the end of the calendar year. However, the overtime was not questioned, because firm employees are on the honor system in reporting their overtime. Discuss whether the firm is acting in an ethical manner by changing the bonus. Is Tonya behaving in an ethical manner?
Exercise 4: Ethics in Decision Making Assume that you are the chairman of the Department of Accountancy at Mountain State University. One of the accounting professors in your department, Dr. Cruz, has been consistently and uniformly regarded by students as an awful teacher for more than 10 years. Other accounting professors within your department have observed Dr. Cruz's classroom teacher and they concur that his teaching skills are very poor. However, Dr. Cruz was granted tenure 12 years ago, thereby ensuring him life-long job security at Mountain State University. Much to your surprise, today you received a phone call from an accounting professor at University of Eastern Philippines. During this phone call you are informed that the University is on the verge of making a job offer to Dr. Cruz. However, before extending the job offer, the faculty at the University wants your input regarding Dr. Cruz's teaching effectiveness while at Mountain State University. Required: How would you…
PART B QUESTIONKLB plc is one of your audit clients for the previous 8 years. The following information are available. The audit team included a manager and two juniors. The client was asking to finish the audit work early this year otherwise they are going to change the auditor next year. One-week bonus was paid to the audit team through their payroll as the client was happy that they finished auditing 5 days earlier than the planned audit time. The audit team got 10% discounts on the client’s products. The same discount is normally given to the client’s staff. Your firm offered this client a bookkeeping service for this year. To reduce the audit cost, the engagement letter was not updated this year as there is no big changes in the audit tasks from last year. Audit fees are based on a percentage of the net profit before tax. One of the audit team received an offer to be appointed in the client’s internal audit department as a head ofdepartment. The finance director was recently…
14-Muscat audit firm is conducting audit for Suhail Bahwan Group since 15 days. Muscat audit firm needs more time to continue the audit because of the size and profile of Bahwan group. The audit firm extended their audit for another 5 days. At the end of audit, the auditors discussed few things in an exit meeting, except: a-Their questions and concerns b-Corrective action plans for the audit issues identified c-Audit results with the management d-The new processes and documentation
48-You are a trainee accountant in an audit firm. A more senior trainee has been on sick leave, and you are due to go on study leave. You have been told by your manager that, before you go on leave, you must complete some complicated work. The deadline is very near. You feel that you are not experienced to complete the work alone. You would need additional help to complete it to the required standard, and your manager appears unable to offer the necessary support. If you try to complete the work within the proposed deadline but with lower quality, you could face problems later You feel slightly intimidated by your manager, and also feel pressure to do the work. Which of the below fundamental principles of professional ethics is affected - a. The reputation of the audit firm may be affected if you try to perform the work and will be against professional behavior. b. You should consider how best to raise the matter with an expert person from your professional body (ACCA). This may…
6. Individual Problems 17-6 The HR department is trying to fill a vacant position for a job with a small talent pool. Valid applications arrive every week or so, and the applicants all seem to bring different levels of expertise. For each applicant, the HR manager gathers information by trying to verify various claims on the candidate's résumé, but some doubt about "fit" always lingers when a decision to hire or not is to be made. Suppose that hiring an employee who is a bad fit for the company results in an error cost of $900, but failing to hire a good employee results in an error cost of $200 to the company. Although it is impossible to tell in advance whether an employee is a good fit, assume that the probability that an applicant is a "good fit" is 0.15, while the probability that an applicant is a "bad fit" is 1-0.15 0.85. Hiring an applicant who is a good fit, as well as not hiring an applicant who is a bad fit, results in no error cost to the company. For each decision in the…
Case 6-3 Richards & Co: Year-end Audit Engagement Paul Lewis is the quality review partner on the Richards & Co. engagement. He was reviewing the workpapers prior to the December 31, 2015, annual audit when he came across transactions that caused him a great deal of concern. He wondered if the firmâs auditors had handled them properly. The following information appeared in a memo to the file that prompted his concern. Memo to File: Supplier Credits for Returned Product For the last three quarters of the year, Richards has engaged in last-minute transactions that are questionable. The facts are, according to the client, that Richards received credits from a cellular phone supplier and promised to repay the supplier by purchasing cellular telephone and repair services at inflated prices in the subsequent quarter. The client has been unable to produce any supporting documents with respect to the promised purchases, and we have not been able to trace any such payments to cash…
Auditing Question 3 Your audit firm has an advertising policy that any audit process will not take more than 20 days for any client. You start reviewing the audit files of your client ALB plc which you audit for eight years and you find the following notes. • The audit team included a manager who owns 1% of the ALB’s shares. The executive partner believes that the 1% is too small and it will not affect the manager experience. • Your firm offered this client a bookkeeping service for this year. • One of the audit team received a high salary offer to be appointed in the client’s internal audit department as a head of department. • The finance director was recently working as an auditor in your audit firm. • ALB plc intends to increase its capital by issuing more shares in the stock market and the financial manager is asking your firm to manage this process. Required: Identify and explain FIVE ethical threats which arise from the above actions and for each ethical threat explain the…
Ethics and professional conduct in business The director of marketing for Truss Industries Inc.. Ellen Knutson, had the following discussion with the company controller. Bud Wyckoff. on February 26 of the current year: Ellen: Bud, it looks like I'm going to spend much less than indicated on my February budget. Butt: I'm glad to hear it. Ellen: Well. I'm not so sure it's good news. I'm concerned that the president will see that I'm under budget and reduce my budget in the future. The only reason that I look good is that we've delayed an advertising campaign. Once the campaign hits in May. I'm sure my actual expenditures will go up. You see. we are also having our sales convention in May. Having the advertising campaign and the convention at the same time is going to kill my May numbers.
Chapter 13: Overall Audit Strategy and Audit Program The following are two situations, all involving non-public companies, in which the auditor is required to develop an audit strategy: 1. The client has inventory at approximately 50 locations in a three state region. This inventory is difficult to count and can be observed only by traveling by car. The internal controls over acquisitions, cash disbursements, and perpetual records are considered effective. This is the fifth year that you have done the audit, and audit results in the past have always been excellent. 2. This is the first year of an audit of a medium sized company that is considering selling its business because of severe under financing. A review of the acquisition and payment cycle indicates that controls over cash disbursements are excellent but controls over acquisitions cannot be considered effective. The client lacks receiving reports and a policy as to the proper timing to record acquisitions. When you…
Exhibit 4 – Notes from discussion with Group audit committee and finance director. Recent publicity During the year, the Group attracted negative publicity when an investigation by a well-known journalist alleged that child labour was being used by several suppliers of raw materials to Lynott Co. The Group refuted the allegations, claiming that the suppliers in question had no contract to supply Lynott Co, and that the Group always uses raw materials from ethically responsible suppliers. The media coverage of the issue has now ended. The Group finance director is confident that the negative publicity has not affected sales of the Group’s products, saying that in fact sales are buoyant, as indicated by the increase in Group revenue in the year. Systems and accounting policies The Group has a policy of non-amortisation of the Browns brand name. The brand name was acquired many years ago and is recognised at its original cost. The previous audit firm accepted the policy due to the…