L. Forrest is a member of the planning and analysis staff for IDI Inc. Forrest has been asked by B. Rolland, chief financial offer of IDI, to prepare a capital expenditure analysis for a proposal to modernize the Western Plant. Because of the size of the proposed investment, this analysis will be given to the board of directions for expenditure approval.
Several years ago, as director of planning and analysis at IDI, Rolland was instrumental in convincing the board to open the Western Plant. However, recent competitive pressures have forced all of IDI's manufacturing divisions to consider alternatives to improve their market position. To Rolland's dismay, the Western Plant may be sold in the near future unless significant improvements in cost control and production efficiency are achieved.
Western's production manager, an old friend of Rolland, has submitted a proposal for the acquisition of an automated materials movement system. Rolland is anxious to have this proposal approved because it will ensure the continuance of the Western Plant and preserve her friend's position. The plan calls for the replacement of a number of forklift trucks and operators with a computer-controlled conveyer-belt system that feeds directly into refrigeration units. This automation would eliminate the need for a number of materials handlers and increase the output capacity of the plant.
Rolland gave this proposal to Forrest along with the data to be used in making the capital expenditure analysis. When Forrest completed his analysis, the proposed project appeared quite healthy. However, after investigating equipment similar to that proposed, Forrest discovered that the estimated residual value of $850,000 was very optimistic; information previously provided by several vendors estimates this value to be $100,000. Forrest also discovered that instead of 12 years, industry trade publications considered 8 years to be the maximum life of similar conveyor-belt systems. As a result, Forrest prepared a second analysis based on this new information. When Rolland saw the second analysis, she told Forrest to discard this revised materials, warned him not to discuss the new estimates with anyone at IDI, and ordered him not to present any of this information to the board of directors.
Required:
Refer to Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management in Chapter 1.
(1) Explain how L. Forrest, a management accountant, should evaluate B. Rolland's directives to repress the revised analysis. Take into consideration the specific standards of competence, confidentiality, integrity, and/or objectivity.
(2) Identify the specific steps L. Forrest should take to resolve this situation.