Ethics Case

CT$44-5$ Steve Morgan, controller for Newton Industries, was reviewing production coat reports for the year. One amount in these reports cootisued to bother him$-$advertiaing. During the year, the company had instituted an expensive advertising campaign to sell some of its slower moving products. It was still too carly to tell whether the advertining campaign was successful.

There had been mush internal Aebute arr bow to report afoertiaing coet. The vice president of finance argued that advertiaing cost should be reported as a cost of production, funt like direct materials and direct labor. He therefore recommended that this cont be identified as manufacturing everbad and reported as part of inventory coits until nold Oibers diagred. Morgan believed that this cont should be reported as an expense of the current period, so as not to overstate set income. Ochers agaed that it abould be reported as prepaid aftertiaing and reported as a current asset.

The presidest finally had to decide the issue. He argoed that advertising cost ahould be reported as investory. His argumats were practical ones. Ile noted that the company was experiescing financial difficulty and that expensing this amoust in the current period might jeopardiae a planned bodd oflering. Alio, by reporting the advertiaing cost as invertory rather than as prepaid advertising, less attention would be directed to it by the financial community.

Instructions

a$.$ Who are the stakeholders in this situation?

b$.$ What are the ethical issues involved in this aituation?

c$.$ What would you do if you were Steve Morgan?