1. A publicly traded corporation has a research & development department. The lead engineering group has an idea for a project that they believe will culminate in a new product that

would be very profitable for the company. Because they anticipate that the project will be very expensive, the department requests approval from the companys controller.

The controller recognizes that corporate profits have been down lately and is hesitant approve a project that will incur significant cots that cannot be capitalized due to the requirements of the authoritative literature. If the company hires an outside firm that does the work and obtains a patent for the process, the company can purchase the paten from the outside firm and record the expenditure as an asset. The controller knows that the companys own R&D department is first-rate, and the controller is confident that the project could be completely successfully internally.

a. What are the ethical issues involved?

b. What make it ethical?