Time Context

No specific date mentioned

Point Of View

Wayne Terrago- Controller

Main Problem

Unethical reporting on advertising costs of Robbin Industries

Objective

To report advertising cost fairly and in accordance to accepted accounting principles.

Areas of Consideration

Internal Differences- Stakeholders cannot agree on where and how advertising cost would be reported.
The controller believed that this cost should be reported as an expense of the current period, based on
the conservatism principle. Others argued that it should be reported as Prepaid Advertising and
reported as a current asset. The vice president of finance argued that advertising costs should be
reported as a cost of production, just like direct materials and direct labor and the president of Robbin
Industries argued that these costs should be reported as inventory.

Unethical issue in reporting - Recommendations from some stakeholders in reporting advertising cost
does not coincide in the accepted principle in accounting in terms of recording and reporting
transactions in the industry.

Alternative Courses of Actions

Report must in accordance with accepted accounting principles- The industry should create a sound
financial statements and record or report transactions ethically to become reliable to decision makers.
Reporting should consider accepted accounting principles to avoid misleading values and financial
statements.

Internal Agreement- Investors and management must agree and choose best concept on how to report
and record advertising cost in accordance with the accepted accounting principles to come up with
reliable values and statements that is useful in decision making.

Recommendations

All alternative courses of actions stated are helpful to overcome the main problem of the industry and
helpful to attain its objective which is to report advertising cost fairly and in accordance to accepted
accounting principles. The company must have an agreement to avoid conflict and to choose the best
concept that will come up with reliable and transparent data of company’s statements that is useful for
decision making. The company must also report in accordance with accepted accounting principles in
order to create a transparent and reliable report and to avoid misleading data for company’s financial
statements.
Action Plans

The company must have an agreement to avoid conflict and to choose the best concept that will come
up with reliable and transparent data of company’s statements that is useful for decision making. The
company must also report in accordance with accepted accounting principles in order to create a
transparent and reliable report and to avoid misleading data for company’s financial statements.

Exhibits

Computer Usage

Questions:

1. Who are the stakeholders in this situation?

The stakeholders in this situation includes:

Wayne Terrago, controller
 Vice President of Finance
President of Robbin Industries
Users of financial statements of Robbin Indutries
Employees of Robbin Industries

2. What are the ethical issues involved in this situation?

The ethical issues involved in this situation are the company cannot agree on where and how to
report the advertising costs. The ethical issues in this situation relates to accepted principles in
accounting. The vice president of finance argued that advertising costs should be reported as a
cost of production, just like direct materials and direct labor. The controller believed that this
cost should be reported as an expense during the period it was used, based on the conservatism
principle. Others argued that it should be reported as Prepaid Advertising and reported as a
current asset. In the end, the president of Robbin Industries decided that the costs are to be
reported as inventory because the company’s in jeopardy with its bond offering.

3. What would you do if you were Wayne Terrago?

If I were Wayne Terrago, as the controller of Robbin Industries I would inform the management
what is the best concept or the acceptable method to report this transaction and what is not.
Advertising cost should be reported fairly and in accordance with accepted accounting principles
to avoid creating misleading financial statements. Advertising costs are expensed in the period
in which they are incurred. It is sometimes recorded as an expense on the balance sheet and
moved to income statement if sales relate to those cost comes in.