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ACCT/495 ACCT495 ACCT 495 Assignment 5-2

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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

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