Question Details

ACCT 495 Assignment 5-2: Application of Ethical Decision Making
47 points

Purpose
To assess your ability to:
•	Analyze the application of ethical decision making to real-life situations
•	Communicate your results using the multi-step professional practice model below
Action Items
1.	Review the article Principles of Ethics for Internal Auditors Made Manageable.
2.	Based on your readings and review, write a 2 to 3 page paper, double-spaced, applying the multi-step professional practice model to the following Case Study:

Example Case: As An Internal Auditor, For Whom Do You Work?

In this example, you are an internal auditor for an industrial chemical company. Your company
continuously ships products and accepts returns of previously shipped products to approximately 5,000
distributors nationwide. From an accounting perspective, inventory is flowing back and forth,
concurrently increasing and decreasing accounts receivable (A/R) balances. Customers sometimes
receive "imperfect" products. In many of these cases, the defective inventory is not returned because
shipping costs are prohibitively high. The standard contract with most customers allows them to identify
and describe the defects in the products and reduce the invoice by the amount charged for the
defective products.
The A/R supervisor (a CPA) is continuously debiting and crediting customer accounts without knowing
the validity of the "defective product" claims. A part of your job as the internal auditor is to ensure that
the A/R supervisor is accounting for returns and payments properly. While doing a review, you discover
that numerous customers with large A/R balances are regularly paying less than the full invoice price
(e.g., a customer is billed for $60,000 but subsequently pays only $50,000) and considering the invoice
to be paid in full due to shipment of "imperfect products." When the reduced payment is accounted for,
the accounting clerk is instructed to credit it to a previously impaired balance rather than the
corresponding invoice. This practice makes it impractical and economically infeasible to subsequently
match the "imperfect product" write-downs to the specific product alleged to be defective. You discover
that the practice has been going on for some time and that a material portion of the A/R balance is
uncollectible but not recorded as such.
Upon further investigation, you discover that the A/R department is understaffed and lacks the
resources to verify customer claims. Also, you learn that the CFO has instructed A/R personnel to
consider all invoices to be collectible and apply payments to prior balances. The CFO justifies this
policy with two reasons: (1) he places little belief in customer claims of imperfect product, and (2) the
external auditors have not complained about the treatment. He benefits directly from the policy in the
form of large bonuses tied to the inflated amount of reported net income.
You approach the CFO and state that the policy is inappropriate and must be changed. In your
judgment, the accounting is not in accordance with GAAP and obfuscates both the balance sheet and
the income statement. The CFO tells you he will not change the policy and asks you, "Who signs your
paychecks?"
3.	Organize your paper using the following Professional Practice Model:
1.	FACTS.  Obtain the relevant facts.
2.	STAKEHOLDERS.  Identify and list the stakeholders (Internal and External).
3.	ISSUES - ETHICAL.  Identify and verbalize the ethical issues.
4.	PRINCIPLES - ETHICAL. Identify and list the ethical principles involved.
5.	ANALYSIS - BRAINSTORM ALTERNATIVES & CONSEQUENCES.
6.	CONCLUSION - Choose the Best Action
•	Please be sure to adhere to APA guidelines on this assignment. If you have questions regarding APA, please access the Franklin Style Manual.

Submission Instructions
•	Click the Submit button in the Toolbox to upload your completed assignment prior to your class meeting.
•	Bring a copy of your assignment to class for your professor.

Grading Criteria
•	Issue Identification - Properly identified and states the ethical issue(s): 0 - 9 points
•	Rule - Explains each of the four classical ethical theories: 0 - 9 points
•	Analysis - Provides an in-depth analysis by applying the facts to the theories based on the issue(s): 0 - 15 points
•	Conclusion - Provides critical analysis for a course of action : 0 - 9 points
•	Grammar and APA effectiveness: 0 - 5 points