Ethical Issues

Ethical Issues

You are the junior management accountant working for Electronics Outlet (EO) which assembles hi-fi components. EO carries a significant amount of finished goods inventory and use the perpetual inventory system. The electronic assembly industry is very competitive and the company has reported losses for the past two years. The Chief Financial Officer (CFO) is anxious that this year the company may default on the terms of a major bank loan which requires the company to maintain a minimum current ratio relationship (current assets/current liabilities).

The yearend inventory of finished goods revealed that, due to problems with suppliers, the last two assembly runs has produced hi-fi products of lower technical specifications and can be sold only for a much smaller price that normal. You have estimated that the sale value per hi-fi is $60 less than cost of producing them and a significant write down in the value of closing stock is required.

The CFO is not prepared to make any adjustment to stock prior to the year end as the business needs the bank loan to continue operations in the short term. He is confident that business will improve in the coming year and by the end of that year a stock adjustment could be made without detrimentally appearing to affect the net profit result.


Use the Stakeholder Analysis framework, described in Chapter One, to briefly analyse the above situation and determine the ethical issue and make a recommendation to your manager.

Question 2.                                                                                                               

Great Sports makes athletic footwear. Processing of production orders is as follows:

At the end of each week, the production planning department prepares a master production schedule (MPS) that lists which shoe styles and quantities are to be produced during the next week. A production order preparation program accesses the MPS and the operations list (stored on a permanent disk file) to prepare a production order for each shoe style that is to be manufactured. Each new production order is added to the open production order master file stored on disk.(ACC8003)

Each day, parts department clerks review the open production orders and the MPS to determine which materials need to be released to production. All materials are bar-coded. Factory workers work individually at specially designed U-shaped work areas equipped with several machines to assist them in completely making a pair of shoes. Factory workers scan the barcodes as they use materials. To operate a machine, the factory workers swipe their ID badge through a reader. This results in the system automatically collecting data identifying who produced each pair of shoes and how much time it took to make them.

Once a pair of shoes is finished, it is placed in a box. The last machine in each work cell prints a bar-code label that the worker affixes to the box. The completed shoes are then sent to the warehouse.


  1. Describe TEN control procedures that should be included in the system.
  1. Describe the type of IT system that is most suitable for a company that mass-produces large batches of standard items in anticipation of customer demand.
  1. Describe the advantages and disadvantages of the IT system described in (b) above.


Some companies have moved to vendor-managed inventory (VMI) systems.

Discuss the potential advantages and disadvantages of this arrangement.

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