This Competency Assessment assesses the following outcome(s):

AC114M5: Illustrate accounting for inventories and merchandise transactions.

GEL-8.02: Apply Critical Thinking to use principles of sound reasoning.
The classification of inventory and the accuracy of inventory amounts are key in business.
Companies that maintain inventory invest a large amount of company resources in securing the
correct inventory for their customers, so it is imperative that these transactions be accounted
for correctly using the appropriate method for the company. The inventory cost flow
assumptions of LIFO, FIFO, and average cost are most frequently used.

 Competency Assessment: Part 8 (Examine the relationship between inventory and commitment
to ethics) is assessed in the below Writing Assignment
Assignment: Writing Assignment
Ethics play a vital role in business and in the accounting profession. Here is an opportunity to
connect you current learning about inventory with the profession’s commitment to ethics.

EC5: Tiffany Lyons was just hired as the assistant treasurer of Key West Stores. The company
is a specialty chain store with nine retail stores concentrated in one metropolitan area. Among
other things, the payment of all invoices is centralized in one of the departments Tiffany will
manage. Her primary responsibility is to maintain the company’s high credit rating by paying
all bills when due and to take advantage of all cash discounts.
Jay Barnes, the former assistant treasurer who has been promoted to treasurer, is training
Tiffany in her new duties. He instructs Tiffany that she is to continue the practice of preparing
all checks “net of discount” and dating the checks the last day of the discount period. “But,”
Jay continues, “we always hold the checks at least 4 days beyond the discount period before
mailing them. That way, we get another 4 days of interest on your money. Most of our
creditors need our business and don’t complain. And, if they scream about our missing the
discount period, we blame it on the mailroom or the post office. We’ve only lost one discount
out of every hundred we take that way. I think everybody does it. By the way, welcome to our
team!”

Respond thoroughly to the following questions in your reflective essay:

1. What are the ethical considerations in this case?
2. Who are the stakeholders that are harmed or benefited in this situation?
3. Should Tiffany continue the practice started by Jay? Does she have any choice?
4. Which Code of Conduct principle would you act on from the professional codes of conduct
guiding ethical behavior in this field (Provide the name of the organization, and the code of
conduct that pertains to why you act, and then provide the URL for your source)?
5. Based on your chosen code of conduct principle(s), what would you do (step-by-step) in order
to act in accordance with your chosen principle to address this situation?

Q1.
In this scenario, there are two major ethical factors to consider. The first thing to consider is "no

harm." Key West Stores can harm and distort their company's financial records and the financial

records of the businesses with which they are associated. When they pre-date the checks to fall

within the discount period, they deceive the public about their actual financial situation. In

addition, they are treading lightly in terms of sticking to proper and accepted business standards,

which is a second ethical factor. According to authorities, key West Stores are abusing the

system and erroneously dispersing funds.

Q2.

The creditors of Key West Stores are one of the parties to who the bankruptcy has impacted.

These "creditors" are providing good faith discounts to Key West Stores even though they are

not getting payments following the terms of the agreement. Similarly to what we discussed in our

textbook, these vendors may rely on these payments to ensure that their bills are paid on time.

Because of the conduct of Key West Stores, it is possible that their credit rating will be badly

damaged. Tiffany Lyons is another stakeholder who can be hurt as a result of this situation. If

Tiffany chooses to engage in Jay Barnes's plot, she is not considered a party to the crime. It is

possible that Tiffany would be held liable if these activities were to come to light. As a result of

the situation, Key West Stores can withhold funds from suppliers, allowing them to increase their

cash on hand, earn more interest while still receiving the discounted rate, and maintain their high

credit rating.

Q3.

Tiffany's unethical processes established by her predecessor must not be followed by her in the

future, as well. The corporation is boosting the amount of interest they generate while also taking

advantage of a deceptive discounting scheme. Tiffany will be forced to make difficult decisions
due to Tiffany's actions, which violate the Code of Business Conduct. She has two options: either

she follows the instructions and becomes involved in the fraud, or she makes difficult decisions

and refuses to follow her employer's orders. Choosing either option has the potential to result in a

terrible outcome. When she follows Jay's instructions, she exposes herself to the possibility of

becoming a participant in an audit that will identify the unethical behaviours in the company. If

management sides with Jay, she may be fired if she continues to hold fast to her moral and

ethical principles. If I can look myself in the mirror and know that I did the right thing rather

than obeying directions that I know are unethical, then that is what I would want to do.

Q4.

When it comes to this issue, the integrity principle stated in the "Code of Ethics for Professional

Accountants (AICPA – American Institute of Certified Public Accountants)" is applicable.

"(AICPA Code of Professional Conduct 2014)" "The principle of integrity requires that all

accountants conduct truthfully and honestly in all of their professional and business

engagements." The notion of integrity also entails that all commercial transactions are conducted

equitably.

Q5.

An auditor may take the following actions if Tiffany chooses to continue to engage in these

unethical business practices. According to the AICPA's guidelines, the first move would be to

inform members of the company's senior management team of the problem. It would be

necessary to escalate the issues to the appropriate regulatory authorities if the members of senior

management and Tiffany failed to adjust their practices and behave under the AICOA's

requirements.