Question

Describe at least one ethical dilemma that can arise out of physical inventory counts.

Answer 1

One major ethical dilemma that can arise out of physical inventory counts is regarding the integrity and objectivity of the accounting profession. For example, the management may compel the accountant to -

(1). Avoid physical inventory counts;

(2). Record the inventory at lower value to disclose lower profits for tax purposes;

(3). Record the inventory at value higher than the actual value for obtaining loan or to disclose higher profits.

Such instances result in ethical dilemma for an accountant. It leads to compromise with integrity and objectivity of the profession. Integrity states that such activities should be refrained which disrepute the profession and objectivity states that all relevant information should be fully disclosed fairly. The accountant in order to maintain cordial terms with the management, may fall for unethical activities, which should be avoided in all circumstances.