Worldwide Electronics Corporation ( WEC) is a seven-year-old company that developed a process to produce reliable electronic components at a cost below that of the competition. In seeking to expand its overall components business, WEC decided to enter the facsimile equipment business, because there was a niche for lower-priced facsimile machines in a growing marketplace. The market WEC pursued consisted of small businesses not yet approached by the larger vendors. WEC sells its machines with a oneyear warranty and has established a maintenance force to handle machine breakdowns.

As WEC customers learned of the benefits of fax transmissions, some increased their usage significantly.

After six months, larger volume users began experiencing breakdowns, and the field technicians'

portable test equipment was not sophisticated enough to detect hairline breaks in the electronic circuitry caused by the heavier-than-expected usage. Consequently, field technicians were required to replace the damaged components.

This situation caused an increase in maintenance costs, which added to the cost of the product.

Unfortunately, there was no way to determine how many of the businesses would become heavy users and be subject to breakdowns. Some of the heavier-volume users began switching to the more expensive machines available from the larger competitors. Although new sales orders masked the loss of heavier volume customers, the increased maintenance costs had an unfavorable impact on earnings. Andrew Fulton, WEC's assistant controller, summarized this situation in his report prepared for the quarterly meeting of the board of directors.

Jack March, vice president of manufacturing, was concerned that the report did not provide any solutions to the problem. He asked Marie Waters, the controller, to have the matter deferred so that his engineering staff could work on the problem. He believed that the electronic component could be redesigned.

This redesigned model, while more costly, could be an appropriate solution for heavier-volume users who should not expect a low-cost model to service their increased needs. March was concerned that the board could decide to discontinue the product line if no immediate solution became available and that the company could miss a potentially profitable opportunity. March further believed that the tone of the report placed his organization in an unfavorable light.

The controller called Fulton into her office and asked him to suppress the part of his formal report related to the component failures. Waters asked Fulton just to cover it orally at the meeting, noting that engineering was working with marketing on the situation to reach a satisfactory solution. Fulton felt strongly that the hoard would be misinformed about a potentially serious impact on earnings if he followed Waters's advice.

Required:

1. Referring to the specific ethical standards for management accountants of competence, confidentiality, integrity, and objectivity, explain why Marie Waters's request to Andrew Fulton is unethical.
Cite not only the concept of each standard but also Waters's action or nonaction that results in an unethical situation.
2. How can Andrew Fulton resolve the situation? What are some of his alternatives?