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Emma Emerson is a proud woman with a problem. Her daughter has been accepted into a prestigious law school. While Ms. Emerson beams with pride, she is worried sick about how to pay for the school; she is a single parent who has worked hard to support herself and her three children. She had to go heavily into debt to finance her own education. Even though she now has a good job, family needs have continued to outpace her income and her debt burden is staggering. She knows she will be unable to borrow the money needed for her daughter's law school. Ms. Emerson is the chief financial officer (CFO) of a small manufacturing company. She has just accepted a new job offer. Indeed, she has not yet told her employer that she will be leaving in a month. She is concerned that her year-end incentive bonus may be affected if her boss learns of her plans to leave. She plans to inform the company immediately after receiving the bonus. She knows her behavior is less than honorable, but she believes that she has been underpaid for a long time. Her boss, a relative of the company's owner, makes twice what she makes and does half the work. Why should she care about leaving with a little extra cash? Indeed, she is considering an opportunity to boost the bonus. Ms. Emerson's bonus is based on a percentage of net income. Her company recently introduced a new product line that required Page 58 substantial production start-up costs. Ms. Emerson is fully aware that GAAP requires these costs to be expensed in the current accounting period, but no one else in the company has the technical expertise to know exactly how the costs should be treated. She is considering misclassifying the start-up costs as product costs. If the costs are misclassified, net income will be significantly higher, resulting in a nice boost in her incentive bonus. By the time the auditors discover the misclassification, Ms. Emerson will have moved on to her new job. If the matter is brought to the attention of her new employer, she will simply plead ignorance. Considering her daughter's needs, Ms. Emerson decides to classify the start-up costs as product costs.Required a. Based on this information, indicate whether Ms. Emerson believes the number of units of product sold will be equal to, less than, or greater than the number of units made. Write a brief paragraph explaining the logic that supports your answer. b. Explain how the misclassification could mislead an investor or a creditor regarding the company's financial condition. c. Explain how the misclassification could affect income taxes. d. Identify the specific components of the fraud triangle that were present in this case. e. Review the Statement of Ethical Professional Practice shown in Exhibit 1.17 and identify at least two ethical principles that Ms. Emerson's misclassification of the start-up costs violated. f. Describe the maximum penalty that could be imposed under the Sarbanes-Oxley Act for the actions Ms. Emerson has taken. g. Comment on how proper internal controls could have prevented fraudulent reporting in this case. ATC 1-6 Spreadsheet Assignment Using Excel The following transactions pertain to Year 1, the first year of operations of the Barlett Company. All inventory was started and completed during Year 1. Assume that all transactions are cash transactions.EXHIBIT 1.17 Statement of Ethical Professional Practice Members of IMA shall behave ethically. A commitment to ethical professional practice includes overarching principles that express our values, and standards that guide our conduct. IMA's overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Members shall act in accordance with these principles and shall encourage others within their organizations to adhere to them. A member's failure to comply with the following standards may result in disciplinary action. Competence Each member has a responsibility to . Maintain an appropriate level of professional expertise by continually developing knowledge and skills. . Perform professional duties in accordance with relevant laws, regulations, and technical standards. . Provide decision support information and recommendations that are accurate, clear, concise, and timely. Recognize and help manage risk. Confidentiality Each member has a responsibility to . Keep information confidential except when disclosure is authorized or legally required. . Inform all relevant parties regarding appropriate use of confidential information. Monitor to ensure compliance.Confidentiality Each member has a responsibility to . Keep information confidential except when disclosure is authorized or legally required. . Inform all relevant parties regarding appropriate use of confidential information. Monitor to ensure compliance. . Refrain from using confidential information for unethical or illegal advantage. Integrity Each member has a responsibility to . Mitigate actual conflicts of interest and avoid apparent conflicts of interest. Advise all parties of any potential conflicts. . Refrain from engaging in any conduct that would prejudice carrying out duties ethically. . Abstain from engaging in or supporting any activity that might discredit the profession. . Contribute to a positive ethical culture and place integrity of the profession above personal interests. Credibility Each member has a responsibility to . Communicate information fairly and objectively. . Provide all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations. . Report any delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law. . Communicate professional limitations or other constraints that would preclude responsible judgment or successfulCredibility Each member has a responsibility to . Communicate information fairly and objectively. . Provide all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations. . Report any delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law. . Communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. Resolution of Ethical Conflict In applying the Standards of Ethical Professional Practice, the member may encounter unethical issues or behavior. In these situations, the member should not ignore them, but rather should actively seek resolution of the issue. In determining which steps to follow, the member should consider all risks involved and whether protections exist against retaliation. When faced with unethical issues, the member should follow the established policies of his or her organization, including use of an anonymous reporting system if available. If the organization does not have established policies, the member should consider the following courses of action: . The resolution process could include a discussion with the member's immediate supervisor. If the supervisor appears to be involved, the issue could be presented to the next level of management. . IMA offers an anonymous helpline that the member may call to request how key elements of the IMA Statement of Ethical Professional Practice could be applied to the ethical issue.organization policy and/ or applicable law. . Communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. Resolution of Ethical Conflict In applying the Standards of Ethical Professional Practice, the member may encounter unethical issues or behavior. In these situations, the member should not ignore them, but rather should actively seek resolution of the issue. In determining which steps to follow, the member should consider all risks involved and whether protections exist against retaliation. When faced with unethical issues, the member should follow the established policies of his or her organization, including use of an anonymous reporting system if available. If the organization does not have established policies, the member should consider the following courses of action: . The resolution process could include a discussion with the member's immediate supervisor. If the supervisor appears to be involved, the issue could be presented to the next level of management. . IMA offers an anonymous helpline that the member may call to request how key elements of the IMA Statement of Ethical Professional Practice could be applied to the ethical issue. . The member should consider consulting his or her own attorney to learn of any legal obligations, rights, and risks concerning the issue. If resolution efforts are not successful, the member may wish to consider disassociating from the organization

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