Question

The president of Murray Stainless Steel Corporation has told you to go out to the factory and count merchandise inventory. He said the stockholders were coming for a meeting and he wanted to put on a good show. He asked you to make the inventory a bit heavy by counting one row twice. The higher ending inventory will show a higher net income. What should you do? Why?

Answer 1

The employee of a company is supposed to follow the instructions of his superior authority or employers. However, when the ethics of an employee is in question, he may not abide with such orders.

In the given case, counting one inventory row twice will definitely lead to overstatement of ending inventory which ultimately leads to overstating profits. The stockholders were given a wrong statement on the performance of the company. Such an intentional act comes under the purview of fraud by the company.

Being an employee, when a fraud is noticed and also when there is pressure by the management to commit fraud, then he shall not commit such fraud. He shall bring notice of such fraud to the independent persons in the Board of Directors through a Vigil Mechanism.