Richmond, Inc., operates a chain of 30 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodeling of its stores to attract a more upscale clientele.

Before finalizing theses plans, two stores were remodeled as a test. Lisa Lee, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. While completing the financial reports, Lisa discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses.

Required:

(1) What are the ethical issues in this case?

(2) Identify the parties whose interests were affected by the hidden obsolete inventory.

(3) In what ways which the individuals were affected by the untrue and unfair disclosure?

(4) In what ways which Richmond’s interest was affected?

(5) According to the IMA’s Statement of Ethical Professional Practice, would it be ethical for Lisa not to report the inventory as obsolete? Which areas of the IMA’s Statement are violated?

(6) What alternative ethical actions could Lisa take in this situation?

(7) What is your proposed solution?