Accounting Essay: Ethical Issues in Inventory and Financial Reporting

This essay examines the ethical considerations within accounting practices, specifically focusing on inventory management and its impact on financial statements and tax expenses. The scenario involves a company facing high corporate tax rates and a significant inventory purchase at inflated prices, raising questions about the ethics of reducing net income through inventory decisions. The essay explores the implications of using the LIFO (Last-In, First-Out) inventory costing method versus FIFO (First-In, First-Out), the ethical responsibilities of a plant accountant in following potentially unethical directives from superiors, and the application of the code of integrity in addressing such situations. Real-world examples, such as the Volkswagen emissions scandal, are used to illustrate the importance of ethical behavior in accounting and the potential consequences of unethical practices. The essay concludes by outlining a step-by-step approach, based on seven ethical principles, to guide ethical decision-making in similar scenarios, emphasizing the importance of honesty, responsibility, and adherence to legal and professional standards. Desklib provides a platform to explore more solved assignments and study resources on this topic.

Running head: ACCOUNTING ESSAY
Accounting Essay
Name of Student:
Name of University:
Author’s Note:

1ACCOUNTING ESSAY
Table of Contents
Effect of the transaction on this year and next year’s income statement and income tax expense. 2
Directive given on following FIFO method of inventory costing...................................................2
Plant accountant ordering inventory purchase for lower income along with the ethical
implications......................................................................................................................................2
Code of Conduct principle acting from the professional codes of conduct guiding ethical
behaviour in this field......................................................................................................................3
Step-by-step order to act in accordance with your chosen principle to address this situation........3
References........................................................................................................................................4

2ACCOUNTING ESSAY
Effect of the transaction on this year and next year’s income statement and income tax
expense
As per given situation it has been clearly mentioned that the corporate tax rate is
currently high and there is a large order placed by the purchasing department when the inventory
price has also doubled in the same year and purchases were presented with major portion of the
ending inventory value. In addition to this, most of the companies with a good year and high
amount of profit is seen to pay a considerable amount of expenses such as rent and other utilities.
The main ethics issue is related to the fact that even after highly amount of corporate tax rate in
the present financial year and inventory cost, the company considered purchasing a new
inventory which will significantly bring down the net income (Ho et al., 2015).
Directive given on following FIFO method of inventory costing
No, the president would not have given the same directive in case FIFO procedure was
followed. The counting of inventory is different in the FIFO method. In general, LIFO method
allows for the inventory which was bought to be sold first therefore the name last in first out.
Therefore, even the president was seen to get the same directive, the net income would have been
different (Ferrell & Fraedrich, 2015).
Plant accountant ordering inventory purchase for lower income along with the ethical
implications
In the given case, the plant accountant had to act according to the way it was directed. It
is to be understood that accountant cannot violate the orders of his supervisor. However, the
directive requested by the president is unethical in nature and the plant manager was compelled

3ACCOUNTING ESSAY
to act according to his orders. Even in case of plant accountant did not forward the order, the
president may have assigned some other person (Grace & Cohen, 2015).
Code of Conduct principle acting from the professional codes of conduct guiding ethical
behaviour in this field
I would like to demonstrate the present issue with the code of integrity. As per the
“Office of Internal Audit”, under the “Code of Ethics”, it has been suggested that integrity is
relevant to acting according to the duties with honesty, responsibility and utmost diligence. The
companies are required to observe the law and make the relevant disclosures expected as per the
law and profession. In 2015, the auto parts maker Volkswagen was penalised for selling of the
vehicles which were not adhering to the environmental emission regulations. In addition to this,
the company secretly install the software in various cars in order to rick the testers of emissions
as per environmental protection agency (Kumar, 2018).
Step-by-step order to act in accordance with your chosen principle to address this situation
The main steps which needs to be followed in order to act with that was in principle
should be based on seven principles of ethics. These principles are listed as follows
ensuring confidentiality and truthfulness
 Informed Consent and Autonomy
 Beneficence
 Nonmaleficence
 Justice

4ACCOUNTING ESSAY
References
Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson
Education.
Grace, D., & Cohen, S. (2015). Business ethics.
Ho, S. S., Li, A. Y., Tam, K., & Zhang, F. (2015). CEO gender, ethical leadership, and
accounting conservatism. Journal of Business Ethics, 127(2), 351-370.
Kumar, T. (2018). Exploring the Linkage Among CSR, Accounting and Factory Performance: A
Study Based on Bangladeshi Garments Factory.