Vincenzo Kemp is the marketing manager at Reinsur Company. Last year, Vincenzo recommended the company approve a capital investment project for the addition of a new product line. Vincenzo's recommendation included predicted cash inflows for five years from the sales of the new product line. Reinsur Company has been selling the new products for almost one year. The company has a policy of conducting annual post-audits on capital investments, and Vincenzo is concerned about the one-year post-audit because sales in the first year have been lower than he estimated. However, sales have been increasing for the last couple of months, and Vincenzo expects that by the end of the second year, actual sales will exceed his estimates for the first two years combined.

Vincenzo wants to shift some sales from the second year of the project into the first year. Doing so will make it appear that his cash flow predictions were accurate. With accurate estimates, he will be able to avoid a poor performance evaluation. Vincenzo has discussed his plan with a couple of key sales representatives, urging them to report sales in the current month that will not be shipped until a later month. Vincenzo has justified this course of action by explaining that there will be no effect on the annual financial statements because the project year does not coincide with the fiscal year--by the time the accounting year ends, the sales will have actually occurred.

Requirements

1. What is the fundamental ethical issue? Who are the affected parties?

2. If you were a sales representative at Reinsur Company, how would you respond to Vincenzo's request? Why?

3. If you were Vincenzo's manager and you discovered his plan, how would you respond?

4. Are there other courses of action Vincenzo could take?