Ameriplex Corporation manufacturers of tablets using state-of-the-art technology. The company began operations in 2015 and reported profits for the years 2016 through 2019. Due primarily to increased competition in the industry and the impact of the pandemic on the economy, the company is projecting a loss of $20 million for 2020. The company's chief financial officer, James Davenport, sent a memo to Peter Maxwell, the company controller, that included the following comments:

If we don't do something about the large amount of unsold tablets already manufactured, our auditors will require us to write them off. The potential loss for 2020 will cause a violation of out debt covenants and for the company into bankruptcy. I suggest you ship half of our inventory to P. C. Outlets, Inc. I know the company's president and he will accept the merchandise and acknowledge the shipment as a purchase. We can record the sale in 2020 which will boost profits to an acceptable level and avoid debt covenant violation. P. C. Outlets will simply return the merchandise in 2021 after the financial statements have been issued.

Required:

1.      The ethical issues James Davenport and Peter Maxwell both face.

2.      The major stakeholders involved and state how each stakeholders would be affected by the course of action suggested by James Davenport.

3.      Explain why you believe the course of action proposed by James Davenport is ethical or unethical.

4.      Recommend an alternative course of action and support your recommendation with appropriate authoritative action.

 

Question 1

Answer

A. Unethical Accounting Practices - Involves manipulating a business's financial data to make the company look more successful

B. Whistle blowing - Its ethical to notify the relevant authorities when unethical practices are done in a business environment.

C . Compliance and governance - its unethical not to comply with set rules and regulation.

Question 2

Answer

A. Shareholders and investors - the course of action would lead to misstatements in the financial statement which would intern affect

decisions of the investors and other parties relying on the financial statements.

B. Auditors - the course of the action would lead to material misstatements which the auditor may not detect hence giving the wrong

opinion on the financial statements and may lead to professional liability on the auditors side.

C. The management - the course of the action by the top level management could lead to legal action against them for concealing to

commit fraud.

Question 3

Answer

the course of action proposed by James Davenport is unethical because ;

• It violates ethical accounting standards of honesty by overstating sales for the year with a view to avoid violating debt covenants and forcing the company into bankruptcy.
• It violates the ethical requirement of whistle blowing by an employee when ethical practices are happening. Peter Maxwell, the company controller should raise the eye blows upon an intended course.

Question 4

Answer

Alternative course of action would include ;

A. The company should develop competitive strategies through advertisement ,promotions and differentiation of their products

in the market.

B. The company should exercise market diversification by extending the business offering to new market segments not previously targeted to boost revenue.

C. The company should negotiate for the restructuring of debt covenants with the financiers over the period of the pandemic to avoid high costs of debts repayments .