IRCS: Valuing Ethics at the Expense of Inventory

Posted: 22 Feb 2016

See all articles by James H. Long

James H. Long

Auburn University - Raymond J. Harbert College of Business - School of Accountancy

Lasse Mertins

Johns Hopkins University - Carey Business School

DeWayne L. Searcy

Auburn University

Date Written: 2013

Abstract

Lisa Martin, the newly promoted controller at International Retail Computer Solutions (IRCS), faces an ethical dilemma. According to her calculations, the company should record a substantial inventory impairment loss. However, top management at IRCS is concerned that Martin’s proposed inventory impairment adjustment will place the company in violation of an important debt covenant, which would allow the bank to call IRCS’s $10 million note. Should Martin insist on keeping her original inventory impairment adjustment? Or should she be a team player and revise the adjustment downward to prevent a debt covenant violation? As students respond to the case questions, they are exposed to a realistic scenario requiring them to think critically about the underlying accounting issues and to consider the ethical implications of Martin’s actions. In addition, the case requires them to apply an ethical framework (the AICPA’s Code of Professional Conduct) to determine the ethical course of action.

Keywords: ethics, inventory impairment, debt covenants, AICPA Code of Professional Conduct

Suggested Citation

Long, James H. and Mertins, Lasse and Searcy, DeWayne L., IRCS: Valuing Ethics at the Expense of Inventory (2013). Issues in Accounting Education, Vol. 28, No. 1, 2013, Available at SSRN: https://ssrn.com/abstract=2735508

James H. Long (Contact Author)

Auburn University - Raymond J. Harbert College of Business - School of Accountancy ( email )

301 Lowder Hall
405 West Magnolia Avenue
Auburn University, AL 36849
United States
(334) 844-6214 (Phone)
(334) 844-5875 (Fax)

HOME PAGE: http://jameshlong.com

Lasse Mertins

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

DeWayne L. Searcy

Auburn University ( email )

415 West Magnolia Avenue
301 Lowder Business Building
Auburn, AL 36849
United States

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