Tom Savin has recently been hired as a cost accountant by the Offset Press Company, a privately held company that produces a line of offset printing presses and lithograph machines. During his first few months on the job, Savin discovered that Offset has been underapplying factory overhead to the Work in Process account, while overstating expenses through the general and administra- tive account. This practice has been going on since the start of the company, which is in its sixth year of operation. The effect in each year has been favorable, having a material impact on the company's tax position. No internal audit function exists at Offset, and the external auditors have not yet discovered the underapplied factory overhead. Prior to the sixth year audit, Savin had pointed out the practice and its effect to Mary Brown, the corporate controller, and had asked her to let him make the necessary adjustments. Brown directed him not to make the adjustments but to wait until the external auditors had completed their work and see what they uncovered. The sixth year audit has now been completed, and the external auditors have once more failed to discover the underapplication of factory overhead. Savin again asked Brown if he could make the required adjustments and was again told not to make them. Savin, however, believes that the adjustments should be made and that the external auditors should be informed of the situation. Since there are no established policies at Offset Press Company for resolving ethical conflicts, Savin is considering following one of three alternative courses of action:

(a) Follow Brown's directive and do nothing further.

(b) Attempt to convince Brown to make the proper adjustments and to advise the external auditors of her actions.

(c) Tell the Audit Committee of the Board of Directors about the problem and give it the appropriate accounting data.

Required: 

1. For each of the three alternative courses of action that Tom Savin is considering, explain whether or not the action is appropriate. Refer to "Standards of Ethical Conduct for Management Accountants" in Chapter 1, page 21, to sup- port your answer.

2. Without prejudice to your answer in Part 1, assume that Tom Savin again ap- proaches Mary Brown to make the necessary adjustments and is unsuccessful. Describe the steps that Tom Savin should take in proceeding to resolve this situation.