Question

1. Give examples of what might be unethical behavior in accounting, and list possible internal controls to prevent these behaviors.

2. Discuss how different inventory methods affect the income statement and balance sheet.

Answer 1

1.

The structured way to gauge into the potential practices is looking at the various departments in a typical business environment:

Product Information and Customer Satisfaction: Falsifying product info. and not handling customers complaints efficiently.

Advertising and Marketing: Making the product superior by bullying the product of competitors.

Accounting and Finance: Trying to manipulate books of accounts, albeit legally to minimize the costs.

HR: Not making the vacancy positions public. Making workers work for long hours without pay. (This has to stop! Seriously)

Senior Management: Trying to lobby for a rule change that allows the company to earn profits at the expense of quality and safety.

Supply Chain and Logistics: Procuring from suppliers and double dipping.

Broadly speaking the following six areas:

1. Hiring Principles and Practices
2. Mission Statement, Culture, and Internal Communication (company-wide emails from the CEO, newsletters, etc..to encourage positive behavior)
3. Rules and Regulations
4. Training (including onboarding and compliance training)
5. Accountability (from both peers and bosses). Perhaps formal and informal.
6. Redundancy in the system. Someone to perhaps check your work

2.The accounting method that a company uses to determine its inventory costs can have a direct impact on its key financial statements (financials)—balance sheet, income statement, and statement of cash flows.

Change in inventories and incorrect inventory balances affect your balance sheet, the financial statement that is a snapshot of your company’s worth based on its assets and liabilities. An incorrect inventory balance can result in inaccurate reported value of assets and owner’s equity on the balance sheet. However, it does not affect liabilities.