PERSON TECHCO, Inc. [C] Management of Person Techco, a developer and marketer of by-products derived from the production of oil and gas, periodically reviews production cost reports during the year. Certain amounts in these reports are disturbing to Geoff Cheftan, an internal auditor who is currently reviewing cost reports for the previous quarter. Geoff is troubled by the classification of sales commission and promotional/marketing costs on the report. During the year, the company instituted a new, expensive advertising and promotion campaign to increase the sale of many of its products. At present, it is too early to tell whether the advertising/promotion campaign was successful, although sales commission costs have been on the rise. Recently, there has been much debate about the accounting treatment and reporting of such costs as advertising /promotion and sales commission costs. Latoia Graham, the COO, argues that advertising/promotion costs and sales commissions should be reported as costs of production, just like direct materials and direct labor. She strongly recommends that these costs be identified as manufacturing overhead and reported as part of cost of goods sold and ending inventory costs. Charles Leak, manager of Warehouse Operations believes that advertising/promotion costs and sales commission costs should be reported as an expense of the current period, based on the conservatism principles of accounting. Fred Conover, a production manager, argues that these costs should be recognized as Prepaid Costs and reported as current assets. The final decision regarding the treatment of the costs in question was made by Marilyn Hicks, the CEO/CFO. She argues that these advertising/promotion and sales commission costs should be included in the cost of goods sold and the cost of ending inventory. Her arguments were practical ones. Ms. Hicks notes that the company was experiencing financial difficulty and expensing this amount in the commission costs should be reported as an expense of the current period, based on the conservatism principles of accounting. Fred Conover, a production manager, argues that these costs should be recognized as Prepaid Costs and reported as current assets. The final decision regarding the treatment of the costs in question was made by Marilyn Hicks, the CEO/CFO. She argues that these advertising/promotion and sales commission costs should be included in the cost of goods sold and the cost of ending inventory. Her arguments were practical ones. Ms. Hicks notes that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering by violating a covenant in the bond agreement. Also, by reporting these costs as inventory rather than as prepaid , less attention would be directed to it by the financial community. You are an outside consultant and have been asked by Geoff Cheftan to assist in settling this issue. Write a letter to Geoff Cheftan that addresses questions and issues that you observed and believe should be considered by all parties involved. You should specifically address the following: [1] Are there any ethical issues involved in this situation? If so, what are those issues. Further, explain who the stakeholders are in this situation and the risks they are up against under the circumstances. [2] What action(s) do YOU recommend should be taken by Geoff Cheftan at this point? EXPLAIN. [3] What actions do you discourage? Be specific. PERSON TECHCO, Inc. [C] Management of Person Techco, a developer and marketer of by-products derived from the production of oil and gas, periodically reviews production cost reports during the year. Certain amounts in these reports are disturbing to Geoff Cheftan, an internal auditor who is currently reviewing cost reports for the previous quarter. Geoff is troubled by the classification of sales commission and promotional/marketing costs on the report. During the year, the company instituted a new, expensive advertising and promotion campaign to increase the sale of many of its products. At present, it is too early to tell whether the advertising/promotion campaign was successful, although sales commission costs have been on the rise. Recently, there has been much debate about the accounting treatment and reporting of such costs as advertising /promotion and sales commission costs. Latoia Graham, the COO, argues that advertising/promotion costs and sales commissions should be reported as costs of production, just like direct materials and direct labor. She strongly recommends that these costs be identified as manufacturing overhead and reported as part of cost of goods sold and ending inventory costs. Charles Leak, manager of Warehouse Operations believes that advertising/promotion costs and sales commission costs should be reported as an expense of the current period, based on the conservatism principles of accounting. Fred Conover, a production manager, argues that these costs should be recognized as Prepaid Costs and reported as current assets. The final decision regarding the treatment of the costs in question was made by Marilyn Hicks, the CEO/CFO. She argues that these advertising/promotion and sales commission costs should be included in the cost of goods sold and the cost of ending inventory. Her arguments were practical ones. Ms. Hicks notes that the company was experiencing financial difficulty and expensing this amount in the commission costs should be reported as an expense of the current period, based on the conservatism principles of accounting. Fred Conover, a production manager, argues that these costs should be recognized as Prepaid Costs and reported as current assets. The final decision regarding the treatment of the costs in question was made by Marilyn Hicks, the CEO/CFO. She argues that these advertising/promotion and sales commission costs should be included in the cost of goods sold and the cost of ending inventory. Her arguments were practical ones. Ms. Hicks notes that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering by violating a covenant in the bond agreement. Also, by reporting these costs as inventory rather than as prepaid , less attention would be directed to it by the financial community. You are an outside consultant and have been asked by Geoff Cheftan to assist in settling this issue. Write a letter to Geoff Cheftan that addresses questions and issues that you observed and believe should be considered by all parties involved. You should specifically address the following: [1] Are there any ethical issues involved in this situation? If so, what are those issues. Further, explain who the stakeholders are in this situation and the risks they are up against under the circumstances. [2] What action(s) do YOU recommend should be taken by Geoff Cheftan at this point? EXPLAIN. [3] What actions do you discourage? Be specific