Topics: Ethics, Generally Accepted Accounting Principles, Business ethics Pages: 2 (616 words) Published: December 4, 2013

Lisa Martin was promoted to the position of controller as IRCS. •IRCS saw an opportunity to acquire POS systems at a discount from traditional market prices, yet IRCS did not have sufficient funds which made them get a loan for 10 million. •IRCS is required to maintain a a coverage ratio of 3, or else it would violate the loan covenant and would have to repay the loan immediately. •IRCS must provide monthly financial statements in accordance with GAAP. •Lisa Martin conducted an inventory impairment test to determine whether inventories were correctly reported at lower of cost or market. •The impartment test performed by Martin calculated a loss of $538,005 due to three slow-moving CPU items. •With the loss in mind, Martin thought about the idea of still selling the items at their cost, yet Scott confirmed that they would have to offer them at discount. •Impairment loss will cause the company to violate thee interest coverage ratio debt covenant. •Lang asked Martin to find a way in order to stop the loss, he did not care if they performed unethical activities. •Lang provided an update to Martin with an order from one of their customers, however, the information provided was not ethical as some of the items were below market values, . •Martin found out from Scott that that they were able to obtain a premium for by giving discounts on other items, however, Harvey asked for the information to be confidential and not to informed any accountant. •ASC- 330-10-35-10 states that lower-of-cost-or-market should be apply to the inventory when there is only one end product and when inventory items are balanced. Martin knew that their inventory is on an item by item basis. ASC also states that the impairment test must be applied consistently from year to year. •Edmonds asked martin to perform lower-of-cost-or market rule to all the inventory. Martin did so and found out that there was no need to record a loss.

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