Ethics. An internal auditor, George Vickery, has been assigned to test the pricing of the finished goods inventory for a subsidiary that manufactures a variety of digital watches in a common facility. Total manufactur¬ ing costs are allocated to the various finished goods stock items using the market value method. This method is supported by the notion that there should be some relationship between a product’s cost and its sales price. Furthermore, IRS regulations permit this approach. LO5 Vickery has found a wide sales price range for the watches. Yet, his observation of the manufacturing process indicates that all types of watches are almost identical except for the brand names by which they are sold and variations in the watch cases. The watch case variations do not represent cost differences.

Vickery also notes that the inventory contains an inordinate proportion of higher priced watches. These proportions do not match well with recent sales pat¬ terns or mix. He believes that allocation of joint cost based on an average unit cost method—that is assign¬ ing the same cost per unit to each watch—seems more reasonable than using the market value method.

This change would significantly lower inventory and profits for the audit year. He has proposed an adjusting entry to restate inventory, using the average unit cost method. He is opposed by the company controller, who supports using the market value method. As Vickery persists, he is informed that the staiggling sub¬ sidiary has a bank loan stipulating a required current ratio and reported profit, which will be violated if the adjusting entry is made. The controller also points out that ownership will react unfavorably to a lower reported profit and, more personally, that the con¬ troller and other management personnel will not only lose their annual bonuses, but will face a threat to their jobs as well, if the internal auditors insist on making the adjusting entry.

Required:

(1) Which of the 15 responsibilities in the Standards of Ethical Conduct for Management Accountants apply to Vickery’s situation?

(2) In addition to ethical responsibilities to his com¬ pany, what other ethical responsibilities does Vickery have to consider?