You are working as the controller of a small clothing manufacturing business in the Midwest, DownHome Outerwear,

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Question:

You are working as the controller of a small clothing manufacturing business in the Midwest, DownHome Outerwear, Inc. DownHome uses a FIFO inventory valuation system. On Dec 31, 2021, ending inventories were determined to be $5.3 million based on physical counts. On Jan 20,2022 you discover an error was made in the physical counts and the actual ending inventory balance should be $4.6 million. DownHome’s major investors require audited financial statements each year. As of Jan 16, the financial statements have been audited by a local CPA firm which did not discover the error after reviewing the financial statements. They will be issuing an unqualified opinion on Jan 26 on the original financial results. Financial Statements have not been issued as of Jan 20 when the error was discovered. Your bonus and several key management employee bonus pools are tied to profit sharing plans based on the business results and you are unsure how this error will impact those results.

Ethical Model for Decision Making

1) Determine the facts of the situation. This involves determining the who, what, where, when, and how.

2) Identify the ethical issues and the stakeholders. Stakeholders might include shareholders, creditors, management, employees and the community.

3) Identify the values related to the situation, For example, in some situation's confidentiality might be an important value that might conflict with the right to know.

4) Specify alternative courses of action.

5) Evaluate the courses of action specified in step 4 in terms of their consistency with the values listed in step 3. This step may or may not lead you to your recommended course of action.

6 )Identify the possible consequences of each course of action.

7) Make your decision and take any indicated course of action.