Ethical dilemmas (Learning Objective 4)

Kara Williams is the new controller for Colors, a designer and manufacturer of sports¬ wear. Shortly before the December 31 fiscal year-end, Lashea Lucas (the company president) asks Williams how things look for the year-end numbers. Lucas is not happy to learn that earnings growth may be below 10% for the first time in the com¬ pany’s five-year history. Lucas explains that financial analysts have again predicted a 12% earnings growth for the company and that she does not intend to disappoint them. She suggests that Williams talk to the assistant controller, who can explain how the previous controller dealt with this situation. The assistant controller suggests the following strategies:

a. Postpone planned advertising expenditures from December to January.

b. Do not record sales returns and allowances on the basis that they are individu¬ ally immaterial.

c. Persuade retail customers to accelerate January orders to December.

d. Reduce the allowance for bad debts (and bad debts expense).

e. Colors ships finished goods to public warehouses across the country for temporary storage until it receives firm orders from customers. As Colors receives orders, it directs the warehouse to ship the goods to nearby customers. The assistant con¬ troller suggests recording goods sent to the public warehouses as sales.

Which of these suggested strategies are inconsistent with IMA standards? What should Williams do if Lucas insists that she follow all of these suggestions?