Chapter 1, Problem 4E

EXERCISE P-4 Ethics and the Manager

Richmond, Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodeling of its stores to attract a more upscale clientele.

Before finalizing these plans, two stores were remodeled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability ofthese stores. While completing the financial reports, Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the situation with her management colleagues;the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses.

Required:

1. According to the IMA’s Statement of Ethical Professional Practice, would it be ethical for Perlman not to report the inventory as obsolete?
2. Would it be easy for Perlman to take the ethical action in this situation?
(CMA, adapted)