Question

Sarah, the controller of a large beverage supplier, supervises two employees. Her boss, Vladimir, instructs her to increase the company's inventory balance for an amount that is material to the financial statements by crediting several small "miscellaneous" expense accounts. She does not understand why he wants her to make these entries but immediately directs one of her staff to make them because she has been instructed to do so. Which of the following statements best describes Sarah's actionsa)Sarah failed to evaluate a potenTal ethical issueb)Sarah failed to refer the ma²er to the AICPA ethics hotlinec)Sarah failed to ensure that her stu± was competent to make the entriesd)Sarah failed to consider the rules of the regulators

Answer 1

Sarah did not evaluate the potential ethical implications of inflating inventory balances at her boss's request. Individuals in accounting roles have a responsibility to uphold ethical standards and should seek guidance when faced with ethical challenges to maintain the integrity of financial statements.

Step-by-step explanation:

The question involves an ethical dilemma in a business accounting context. Sarah, the controller of a large beverage supplier, was instructed by her boss, Vladimir, to artificially increase the company's inventory balance by crediting several small "miscellaneous" expense accounts. Doing so without understanding the reason and its potential repercussions on the financial statements raises ethical concerns. It appears that Sarah failed to evaluate a potential ethical issue, which is an essential responsibility for individuals in controlling and accounting positions within a company.

In similar scenarios where individuals encounter ethical challenges, they should assess the situation, consider the consequences of their actions on the integrity of financial statements, and investigate the reasons behind such requests. If necessary, they should seek guidance from professional bodies or adhere to established ethical standards and regulations to protect not only their integrity but also that of the company