You are the controller of Small Toys Inc. Pamela Bames, the president, recently mentioned to you that she found an error in the 2016 fi nancial statements which she believes has corrected itself. She determined, in discussions with the Purchasing Department, that 2016 ending inventory was overstated by $1 million. Pamela says that the 2017 ending inventory is correct. Thus, she assumes that 2017 income is correct. Pamela says to you, “What happened has happened—there’s no point in worrying about it anymore.”

Instructions

You conclude that Pamela is incorrect. Write a brief, tactful memo to Pamela, clarifying the situation.