You have recently taken a position with Albers, Inc., a wholesale company that relies heavily on sales outside the United States. In order to facilitate sales worldwide, the company has warehouses at several non–U.S. locations from which it services important markets in different parts of the world.
You are in the midst of year-end closings, and your supervisor approaches you about what can be done to improve the appearance of the company’s performance for the current year. His idea is to intentionally overstate year-end inventory at locations outside the United States, thereby reducing cost of goods sold and improving gross profit and net income. Because of the remote locations where much of the inventory is housed, he reasons that it is unlikely that the overstatement will be discovered. You are aware that his compensation includes a bonus based, in part, on reported income. He has also indicated that he will “take care of you” in the future if you are supportive in taking steps to improve the company’s reported financial performance, such as the inventory over-statement he currently proposes.
a. Once you get over the shock of being asked to engage in this activity, how will you deal with this situation? What are the implications to you of going along with your supervisor’s plan? If you are not inclined to cooperate, how will you deal with this situation?
b. Besides being unethical, what other implications does your supervisor’s plan have for your company’s reported performance in future years?