Dulwich has recently been hired as a cost management specialist by Offset Press

Question

Dulwich has recently been hired as a cost management specialist by Offset Press Company, a Ethical Issues ?? Problem 3-52 rivately held company that produces a line of offset printing presses and lithograph machines his first few months on the job, Dulwich discovered that Offset has been underapplying factory overhe . During Underapplication of ad Manufacturing Overhe the Work-in-Process Inventory account, while overstating expenses through the General istrative Expense account. This practice has been going on since the start of the company its sixth year of operation. T company's tax position. No internal audit function discovered the underapplied factory overhead , which is in he effect in each year has been favorable, having a material impact on the exists at Offset, and the external auditors have not yet Prior to the sixth-year audit, Dulwich had pointed out the practice and its effect to Mary Brown, the corporate controller, and had asked her to let him make the necessary adjustments. Brown directed him not to make the adjustments, but to wait until the external auditors had completed their work and see what they uncovered The sixth-year audit has now been completed, and the external auditors have once again failed to discover the underapplication of factory overhead. Dulwich again asked Brown if he could make the required adjustments and was again told not to make them. Dulwich, however, believes that the adjust ments should be made and that the external auditors should be informed of the situation Since there are no established policies at Offset Press Company for resolving ethical conflicts Dulwich is considering one of the following three alternative courses of action Follow Brown's directive and do nothing further Attempt to convince Brown to make the proper adjustments and to advise the external auditors of her actions Tell the Audit Committee of the Board of Directors about the problem and give them the appropri ate accounting data . Required 1. A s a group, discuss the situation at Offset. For each of the three alternative courses of action that Dulwich is considering, discuss whether or not the action is appropriate Independent of your answer to requirement (1), assume that Dulwich again approaches Brown to make the necessary adjustments and is unsuccessful. Discuss the steps that Dulwich should take in proceeding to resolve this situation 2. (CMA, adapted)

Explanation / Answer

FACTS OF THE CASE: JOEY DULWICH recently joined in offset press company as a cost accountant. Dulwich dicovers that offset has been underapplying factory overhead to the working process account While overstating expenses through the general and administrative expenses account. This practice practice has going since starting of the company. Dulwich had pointed out the practice and addressed to the Mary Brown, the corporate controller. But brown directed him to not make any adjustments let external auditor team find out the problem. Later external audit team also didn't found out that mistake. Again dulwich asked brown if he could make the required adjustments. Anlaysis: If any mistake found by any of us with in the company. Either it will show favourable impact or unfavourable impact. We need to address the saem to the aurthorities No need to wait till external auditors action. Even if your supirior is not supporting to you. You can directlt convey the same to either Board of directors or the external auditors. Here Dulwich found that underapplying the factory overhead to the working process account. While overstating the expenses through general and administrative expenses account. As mentioned in the question every year it is favourable to the company only. External audit will happen only few days in a year. The auditors may not have sufficient time to found all types of mistakes. But as a responsible cost accountant. Mr. Dulwich has to take necessary action against that underapplying factory overhead. Here Dulwich should act as a independent and has to address the same to either Board of directors or external auditors. The word independent means he has a right address his views directly to top management. Conclusion: So here Dulwich tell his observation to audit committee of board of directors about the problem and give them appropriate data.

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