All Logistics, a US shipping company, has just begun distributing goods across the Atlantic to Norway. The company began operations in 2011, transporting goods to South America. The company’s earnings are currently trailing behind its competitors and the company’s investors are becoming anxious. Some of the company’s largest investors are even talking of selling their interest in the shipping newcomer. The CEO, Mr. Pahn, calls an emergency meeting with his executive team. Pahn needs a plan before his upcoming conference call with uneasy investors. The company’s executive staff made the following suggestions for salvaging the company’s short-term operating results:
a. Stop all transatlantic shipping efforts. The startup costs for the new operations are hurting current profit margins.
b. Make deep cuts in pricing through the end of the year to generate additional revenue.
c. Pressure current customers to take early delivery of goods before the end of the year so that more revenue can be reported in this year’s financial statements.
d. Sell of distribution equipment prior to year-end. The sale would result in one-time gains that could offset the company’s lagging profits. The owned equipment could be replaced with leased equipment at a lower cost in the current year.
e. Record executive year-end bonus compensation for the current year in the next year when it is paid after the December fiscal year-end.
f. Recognize sales revenues on orders received but not shipped as of the end of the year.
g. Establish corporate headquarters in Ireland before the end of the year, lowering the company’s corporate tax rate from 28% to 12.5%.
Required:
As a management accountant, write a formal business memorandum to the CEO about his concerns. In the memo, make sure to address each of the suggestions above and indicate whether they are (a) in violation of ethical standards and why, or (b) acceptable and why. Consider the “Standards of Ethical Behavior for Practitioners of Management Accounting and Financial Management” on page 18 of the textbook. Conclude the memo with a final recommendation to the CEO as to what action(s) should be taken by the company.
Make sure the heading of the memo includes your name and the course number. Your memo must be in either Word or PDF format only – otherwise you will receive a zero – NO EXCEPTIONS! This assignment should be no more than 3 pages, double spaced, and is due on the last day of classes
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