Question

1. Pittard Collectibles (PC) makes all sales under terms of FOB delivery point. The firm usually receives orders for sales approximately one week before delivering inventory to customers. For orders received late in June, owner Karen Pittard decides when to deliver goods. If profits are already at an acceptable level, Pittard delays delivery until July, the next financial year. If profits for the current year are lagging behind expectations, Karen delivers goods during June. As PC’s accountant you have been asked if under PC’s FOB policy, this is acceptable practice of recording sales.

Question: Use the stakeholder analysis framework described in accounting information systems, to analyse if there is an ethical dilemma for Pittard with reference to accounting standards, disclosure and any laws applicable.

Answer 1

For goods shipped under FOB destination, ownership passes to the buyer when the goods arrive at the buyer's receiving dock; at this point, the seller has completed the sales transaction and revenue has been earned and is recorded.

Going by this understanding, the approach followed by Pittard Collectibles (PC) - where in the pre-pone deliveries and then record Sales revenue for the same is allowed under the Accounting standards and Financial reporting Framework.

However, considering that PC prepones the deliveries and revenue recognition, in order to strategically distribute revenue recognition in order to achieve budgets and targets, there may exist and ethical dilemma for PC with reference to Accounting standards Disclosures and Laws applicable- discussed using the Stakeholder Analysis Framework in detail

In the current scenario- PC will have to analyze how important are the stakeholders concerned and how the information about such an accounting practices should be communicated to them. While this accounting may seem correct as per accounting standards, the stakeholders might have various concerns around the company failing to achieve targets in the regular course of business in the first place and how the same could impact the earnings of the stakeholders. Also, by way of preponing Revenue- in principle it only pre-pones the earning of the Stakeholders and does not reflect any growth in earnings. Such facts can be alarming to the stakeholders and PC must therefore consider all these factors and the below mentioned detailed analysis before concluding on such accounting approaches.

Conducting a stakeholder analysis can be strategically valuable when kicking off any type of complex company undertaking. There are certain steps involved:

Step 1: Determine who your stakeholders are

The list of potential stakeholders could include:

• Executive staff
• Marketing
• Sales
• Finance
• Product
• Development/engineering/manufacturing
• Procurement
• The heads of all affected business units
• Consultants
• Operations/IT

Step 2: Group and prioritize these stakeholders

Start categorizing them in terms of their influence, interest, and levels of participation in your project. You may use the Power- Interest Grid to do so.

1. High power, high interest: These are your most important stakeholders, and you should prioritize keeping them happy with your project’s progress.
2. High power, low interest: Because of their influence in the company, you should work to keep these people satisfied. But because they haven’t shown a deep interest in your project, you could turn them off if you over-communicate with them.
3. Low power, high interest: You’ll want to keep these people informed and check in with them regularly to make sure they are not experiencing problems on the project.
4. Low power, low interest: Just keep these people informed periodically, but don’t overdo it.

Step 3: Figure out how to communicate with and win buy-in from each type of stakeholder

This is the most important step where the real dilemma will be faced by PC.

Accrodingly there does exist an ethical dilemma for PC, and they should first analyse using the Stakeholder Analysis Framework and then make an infirmed decision about pre-poning deliveries and ultimately Revenue Recognition.