The CEO of Textrala Petroleum, a crude oil wholesaler, is on an incentive compensation plan that weighs accounting net income heavily when awarding compensation. For 2003, Textrala has done so well that the CEO's bonus has reached its maximum under the compensation contract. Shortly before year end, the CEO is informed that a large oil tanker is sitting off the coast of Texas waiting to discharge its load at the company's terminals. Once it does, the oil will be counted in Textrala's ending inventory for 2003. The CEO asks that the ship be held off for a few days, at some expense, until after the beginning of the new accounting year.

a. Why did the CEO make this request?

b. As Textrala's auditor, can you say that the financial statements for the fiscal year 2003 are misstated?

c. Discuss the ramifications of the CEO's action for your audit.