The financial controller of Baba Plc , a Tamale -based based manufacturer and retailer of sportinggoods, prepares quarterly accounts for the finance director. At the end of the first quarter of 2018, the financial controller identified that net assets were below the level required by a bank covenant and alerted the finance director to this. The following week the financial controller identified that amended quarterly accounts had been sent to the bank, in which the inventory figure had been increased.

The same issue arose at the end of the second quarter of 2018, and again the financial controller noted that the accounts sent to the bank included a different inventory figure from those that he had prepared the previous week. The financial controller is sure that cut-off procedures and valuation were correctly adhered to and so has asked the finance director to explain the adjustments.

Her response was as follows:

'The adjustment is just for some goods held at one of our customer's retail premises we missed it out from the stock count. Don't worry I've got it all in hand!'

The financial controller has reviewed the contract with the customer in question and notes that it clearly states that the customer will be supplied with goods as ordered and has no right of return in the case of unsold goods. He also notes that Ghanasport has sold goods to this customer for a number of years on the same terms, and no adjustment has ever been made before.

Both the financial controller and finance director are chartered accountants.

Required

(i) Explain why the inventory adjustment suggests an ethical issue.

(ii) Explain the finance director's duties in the context of this issue.

(iii) Explain the course of action that the financial controller should take in respect of the issue

that he has identified.