P4.39 LO 4.4 4.6 Ethical issues; underapplication of manufacturing overhead: manufacturer Geoff Walker has recently been hired as a cost accountant by Imprint Pty Ltd, a producer of a range of 3D printers and associated peripherals. During his first few months on the job, Walker discovered that Imprint had been underapplying factory overhead to the work in process account, while overstating expenses through the general and administrative 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 favourable, having a material impact on the company's tax position. No internal audit function exists at Imprint, and the external auditors have not yet discovered the underapplied factory overhead. Prior to the sixth-year audit, Walker pointed out the practice and its effect to Gina Grey, the chief financial officer, and asked her to let him make the necessary adjustments. Grey 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 was completed, and the external auditors once again failed to discover the underapplication of factory overhead. Walker again asked Grey for approval to make the required adjustments, which was refused once again. Walker maintains that the adjustments should be made and that the external auditors should be informed of the situation. Since there are no established policies at Imprint for resolving ethical conflicts, Walker is considering one of the following three courses of action: 1. Follow Grey's directive and do nothing further. 2. Attempt to convince Grey that the proper adjustments should be made and the external auditors advised. 3. Advise the audit committee and supply appropriate accounting data to provide evidence of the problem. Required 1. For each of the three courses of action that Geoff Walker is considering, explain whether or not the action is appropriate. (Hint: Refer to the ethical issues discussed in Chapter 1.) 2. Independent of your answer to requirement 1, assume that Geoff Walker again approaches Gina Grey for approval to make the necessary adjustments and is unsuccessful. Describe the steps that Geoff Walker should take to resolve this situation.