Steve Morgan, controller for Newton Industries, was reviewing production cost reports for the year. One amount in these reports continued to bother himadvertising. During the year, the company instituted an expensive advertising campaign to sell some of its slower-moving products. Although the advertising campaign had been completed during the year, it was still too early to tell whether it was successful.

There had been much internal debate as how to report the advertising cost associated with this campaign. The Vice President (VP) of Finance argued that the advertising cost should be reported as a cost of production, just like direct materials and direct labor. He therefore recommended that this cost be identified as manufacturing overhead and reported as part of inventory until sold. However, Steve believed that the advertising cost should be reported as an expense in the current period, so as not to overstate net income. Others in the company argued that it should be reported as prepaid advertising and reported as a current asset.

The President of Newton Industries finally came to a decision. She argued that the advertising cost should be reported as inventory, in line with the VP of Finance's belief. The President's arguments were practical ones. She noted that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering. She also said that the advertising cost should not be reported as prepaid advertising, since reporting it that way might generate too much attention from the financial community.

Questions and Templates for Your Responses

NAME: (5 points)

1) Which standards in the IMA Statement of Professional Ethical Practice are involved in Steves decision? State the top 3 part(s) of the standard(s) involved by reviewing the slides we went over in class. If you list more than 3 parts, I will grade only the first 3. Remember that you are in Steve's shoes. For this question, you do not have to state your rationale for the parts you choose. (15 points)

Point (choose among points 1 to 4 depending on which standard) of Standard(s) of (choose among Competence, Confidentiality, Integrity and Credibility. The Standards of Competence and Confidentiality each have 3 points listed. The Standards of Integrity and Credibility each have 4 points listed.

Redo this for each applicable point within each Standard.

For an example that does NOT apply to this case: Point 1 of the Standard of Confidentiality, Keep information confidential expect when disclosure is authorized or legally required applies

2) In the context of this situation, what does the IMA Statement of Professional Ethical Practice suggest for resolving ethical issues? (15 points)

The IMA Statement of Ethical Professional Practice suggests the following steps for resolving ethical issues:

State each step listed within the Resolving Ethical Issues Section of the IMA Statement of Ethical Professional Practice. Remember to read the paragraph before the list of actions, because it contains an important suggestion.