Accounting Ethical Standards

Problem 1-6: Just-in-Time (JIT) Purchasing [L02, L03]

1. Would Charlie be justified in ignoring this situation, particularly because he is not the purchasing agent? In preparing your answer, consider the IMA’s Statement of Ethical Professional Practice.

Charlie would not be justified in ignoring this situation. Practices can enter a gray area of being ethically sound or not. Charlie should consult with an IMA Ethics Counselor if questions arise of ethical appropriateness. In this case, J.B. is not practicing Section III: Integrity in his capacity at WIW. Part 2 of integrity indicates a member should refrain from engaging in any conduct that would prejudice carrying our duties ethically. Part 3 also indicates that IMA members should abstain from engaging in or supporting any activity that might discredit the profession.

J.B. as the President of WIW and Tony as the Purchasing agent are attempting to create JIT purchasing agreements with A-1; however, J.B. has a relationship with the owner of A-1 who happens to be his brother-in-law. Considering A-1’s high markup of 30% proves unethical practices of purchasing are occurring. The company is getting a kick-back from WIW’s purchases. The company would save more than half a million dollars ordering directly from manufacturers rather than A-1 where 90% of their supplies come from manufacturers and only 10% from their warehouse.

Charlie has maintained credibility as outlined in Section IV of the IMA Statement of Ethical Professional Practice. He has communicated this information directly to his supervisor fairly and objectively. He has disclosed all relevant information that could influence another’s understanding of the issue, and he has disclosed the deficiencies in the current agreement between A-1 and WIW that do not conform with corporate policy and by law.

Another concern is the President and Purchasing agent are trying to implement JIT purchasing which reflects a “pull tactic” rather...