Today, as the business world becomes more complicated than the past, many internal accounting managers face with challenging situations. And situation like Kranbraek Corporation makes an internal accounting manager a hard decision between his professional ethics and accepting orders from his or her boss. What really matters is that this is violation of the professional codes of ethics, and it is going to end up with the collapse of the company.
Cellant, who is the president of Kranbraik Corporation, has ordered the companyÃÂ¡ÃÂ¯s controller to scrutinize all costs that are currently classified as period cost and reclassify as many as possible as product costs. It is meant to convert fixed costs to variable one so that fixed cost that should be incurred this year can be portioned to next year. It sounds clever to debit selling expenses as cost of goods sold which is going to be charged over the next year when the sales amounts are quite high.
However, the cost of goods sold next year are going to be higher than actual cost of goods sold, then the other aspects of the situation are going to cause the controller to cook the accounting books in other places. Reclassifying period costs to product costs will eventually and consecutively cause more problems later on. Moreover, professional auditors will doubt why Kranbrack Corporation cutbacks period costs, and they will eventually find out that the company deceived stakeholders to look fabulous to potential investors by showing impressive earning per share. Finally, the later story implies an fatal disaster.
Whether actual sales accounts donÃÂ¡ÃÂ¯t exceed the planned amounts, it is proper to cut back discretionary fixed costs like advertising and travel. However, nobody knows how adversely cutting back advertising expense affect is invisible and tremendous. Thus, the controller should not disregard the...