Discussion Board Rubric: Excellent 5, Acceptable

Discussion Board Rubricdiscussion Board Excellent 5 Acceptable 5 U

Discussion Board Rubric discussion Board Excellent (5) Acceptable (5) Unacceptable (0) Organization (5pts) The post advances further discussion by stimulating at least one substantial follow-up post. The post advances further discussion but analysis is not fully developed. Short post, which does not develop idea for further discussion. Content/Connection (5pts) Author makes meaningful connection to the week’s readings and personal reflection. Somewhat meaningful connections but they are not clearly presented. Lacks insight and does not make connection to this week’s readings. Grammar/Spelling (5pts) Free of grammatical/spelling errors. Some grammatical/spelling errors. Poor spelling and many grammatical errors. Response to Another Student (5pts) Response is thoughtful, analytical and original. Response is not fully developed or clearly presented. No response to another student’s post. Case 2-7 Milton Manufacturing Company Milton Manufacturing Company produces a variety of textiles for distribution to wholesale manufacturers of clothing products. The company’s primary operations are located in Long Island City, New York, with branch factories and warehouses in several surrounding cities. Milton Manufacturing is a closely held company, and Irv Milton is the president. He started the business in 2005, and it grew in revenue from $500,000 to $5 million in 10 years. However, the revenues declined to $4.5 million in 2015. Net cash flows from all activities also were declining. The company was concerned because it planned to borrow $20 million from the credit markets in the fourth quarter of 2016. Irv Milton met with Ann Plotkin, the chief accounting officer (CAO), on January 15, 2016, to discuss a proposal by Plotkin to control cash outflows. He was not overly concerned about the recent decline in net cash flows from operating activities because these amounts were expected to increase in 2016 as a result of projected higher levels of revenue and cash collections. However, that was not Plotkin’s view. Plotkin knew that if overall negative capital expenditures continued to increase at the rate of 40 percent per year, Milton Manufacturing probably would not be able to borrow the $20 million. Therefore, she suggested establishing a new policy to be instituted on a temporary basis. Each plant’s capital expenditures for 2016 for investing activities would be limited to the level of those capital expenditures in 2013, the last year of an overall positive cash flow. Operating activity cash flows had no such restrictions. Irv Milton pointedly asked Plotkin about the possible negative effects of such a policy, but in the end, he was convinced that it was necessary to initiate the policy immediately to stem the tide of increases in capital expenditures. A summary of cash flows appears in Exhibit 1. EXHIBIT 1 MILTON MANUFACTURING COMPANY Summary of Cash Flows For the Years Ended December 31, 2015 and December 31, 2014 Cash Flows from Operating Activities Net income $ 372 $ 542 Adjustments to reconcile net income to net cash provided by operating activities (2,383) Net cash provided by operating activities $ (1,978) $ (1,841) Cash Flows from Investing Activities Capital expenditures $ (1,420) $ (1,918) Other investing inflows (outflows) Net cash used in investing activities $ (1,244) $ (1,834) Cash Flows from Financing Activities Net cash provided (used in) financing activities $ 168 $ 1,476 Increase (decrease) in cash and cash equivalents $ (3,054) $ (2,199) Cash and cash equivalents—beginning of the year $ 3,191 $ 5,390 Cash and cash equivalents—end of the year $ 147 $ 3,191 Sammie Markowicz is the plant manager at the headquarters in Long Island City. He was informed of the new capital expenditure policy by Ira Sugofsky, the vice president for operations. Markowicz told Sugofsky that the new policy could negatively affect plant operations because certain machinery and equipment, essential to the production process, had been breaking down more frequently during the past two years. The problem was primarily with the motors. New and better models with more efficient motors had been developed by an overseas supplier. These were expected to be available by April 2016. Markowicz planned to order 1,000 of these new motors for the Long Island City operation, and he expected that other plant managers would do the same. Sugofsky told Markowicz to delay the acquisition of new motors for one year, after which time the restrictive capital expenditure policy would be lifted. Markowicz reluctantly agreed. Milton Manufacturing operated profitably during the first six months of 2016. Net cash inflows from operating activities exceeded outflows by $1,250,000 during this time period. It was the first time in two years that there was a positive cash flow from operating activities. Production operations accelerated during the third quarter as a result of increased demand for Milton’s textiles. An aggressive advertising campaign initiated in late 2015 seemed to bear fruit for the company. Unfortunately, the increased level of production put pressure on the machines, and the degree of breakdown was increasing. A big problem was that the motors wore out prematurely. Markowicz was concerned about the machine breakdown and increasing delays in meeting customer demands for the shipment of the textile products. He met with the other branch plant managers, who complained bitterly to him about not being able to spend the money to acquire new motors. Markowicz was very sensitive to their needs. He informed them that the company’s regular supplier had recently announced a 25 percent price increase for the motors. Other suppliers followed suit, and Markowicz saw no choice but to buy the motors from the overseas supplier. That supplier’s price was lower, and the quality of the motors would significantly enhance the machines’ operating efficiency. However, the company’s restrictions on capital expenditures stood in the way of making the purchase. Markowicz approached Sugofsky and told him about the machine breakdowns and the concerns of other plant managers. Sugofsky seemed indifferent but reminded Markowicz of the capital expenditure restrictions in place and that the Long Island City plant was committed to keeping expenditures at the same level as it had in 2014. Markowicz argued that he was faced with an unusual situation and he had to act now. Sugofsky hurriedly left, but not before he said to Markowicz, “You and I may not agree with it, but a policy is a policy.” Markowicz reflected on his obligations to Milton Manufacturing. He was conflicted because he viewed his primary responsibility and that of the other plant managers to ensure that the production process operated smoothly. The last thing the workers needed right now was a stoppage of production because of machine failure. At this time, Markowicz learned of a 30-day promotional price offered by the overseas supplier to gain new customers by lowering the price for all motors by 25 percent. Coupled with the 25 percent increase in price by the company’s supplier, Markowicz knew he could save the company $1,500, or 50 percent of cost, on each motor purchased from the overseas supplier. After carefully considering the implications of his intended action, Markowicz contacted the other plant managers and informed them that while they were not obligated to follow his lead because of the capital expenditure policy, he planned to purchase 1,000 motors from the overseas supplier for the headquarters plant in Long Island City. Markowicz made the purchase at the beginning of the fourth quarter of 2016 without informing Sugofsky. He convinced the plant accountant to record the $1.5 million expenditure as an operating (not capital) expenditure because he knew that the higher level of operating cash inflows resulting from increased revenues would mask the effect of his expenditure. In fact, Markowicz was proud that he had “saved” the company $1.5 million, and he did what was necessary to ensure that the Long Island City plant continued to operate. The acquisitions by Markowicz and the other plant managers enabled the company to keep up with the growing demand for textiles, and the company finished the year with record high levels of profit and net cash inflows from all activities. Markowicz was lauded by his team for his leadership. The company successfully executed a loan agreement with Second Bankers Hours & Trust Co. The $20 million borrowed was received on October 3, 2016. During the course of an internal audit of the 2016 financial statements, Beverly Wald, the chief internal auditor (and also a CPA), discovered that there was an unusually high number of motors in inventory. A complete check of the inventory determined that $1 million worth of motors remained on hand. Wald reported her findings to Ann Plotkin, and together they went to see Irv Milton. After being informed of the situation, Milton called in Sugofsky. When Wald told him about her findings, Sugofsky’s face turned beet red. He told Wald that he had instructed Markowicz not to make the purchase. He also inquired about the accounting since Wald had said it was wrong. Wald explained to Sugofsky that the $1 million should be accounted for as inventory, not as an operating cash outflow: “What we do in this case is transfer the motors out of inventory and into the machinery account once they are placed into operation because, according to the documentation, the motors added significant value to the asset.†Sugofsky had a perplexed look on his face. Finally, Irv Milton took control of the accounting lesson by asking, “What’s the difference? Isn’t the main issue that Markowicz did not follow company policy?†The three officers in the room nodded their heads simultaneously, perhaps in gratitude for being saved the additional lecturing. Milton then said he wanted the three of them to brainstorm some alternatives on how best to deal with the Markowicz situation and present the choices to him in one week. Questions Use the Integrated Ethical Decision-Making Process discussed in the chapter to help you assess the following: 1. Identify the ethical and professional issues of concern to Beverly Wald as the chief internal auditor and a CPA. 2. Who are the stakeholders in this case and what are their interests? 3. Page 105 Identify alternative courses of action for Wald, Plotkin, and Sugofsky to present in their meeting with Milton. How might these alternatives affect the stakeholder interests? 4. If you were in Milton’s place, which of the alternatives would you choose and why?

Paper For Above instruction

The case of Milton Manufacturing Company presents a complex web of ethical dilemmas that require careful analysis considering professional standards, stakeholder interests, and organizational policies. Central to this scenario are issues of financial integrity, adherence to policies, and the moral responsibilities of managers and auditors. Applying the Integrated Ethical Decision-Making Process enables a thorough assessment of these concerns, highlighting the importance of ethical principles such as honesty, transparency, and accountability.

First, Beverly Wald, as the chief internal auditor and CPA, faces significant ethical and professional issues. Her primary concern revolves around the potential misclassification of inventory as operating expenses to conceal the true size of motor inventories, which could distort financial statements. This act of reclassifying $1 million worth of motors, contrary to standard accounting practices, raises questions about compliance with Generally Accepted Accounting Principles (GAAP) and the ethical obligation to report accurate financial information. Wald’s duty is to uphold integrity by reporting the facts transparently, even if it involves confronting senior management and risking professional relationships. Her responsibility extends beyond mere compliance; it encompasses safeguarding the company's reputation by ensuring truthful disclosures, which underpin stakeholder trust.

The stakeholders involved in this case include Irv Milton, the president, whose primary interest lies in maintaining the company's profitability and reputation; Ann Plotkin, the CAO, responsible for accurate financial reporting; Sugofsky, the vice president for operations, concerned with operational efficiency and policy adherence; the plant managers, like Sammie Markowicz, who are tasked with operational effectiveness; the internal auditors; external auditors; creditors such as Second Bankers Hours & Trust Co.; and shareholders and employees who are affected by the company's financial health and ethical standing.

These stakeholders have differing interests: Milton aims to sustain profitability and growth; Plotkin seeks accurate and compliant financial statements; Sugofsky emphasizes policy enforcement but faces operational pressures; plant managers prioritize production continuity and cost savings; auditors focus on transparency and compliance; creditors require trustworthy financial disclosures for lending decisions; shareholders desire stability and profitability, and employees wish for job security. When any unethical action occurs, it risks undermining these interests, especially stakeholder trust and the company's reputation.

Considering alternative courses of action for Wald, Plotkin, and Sugofsky involves evaluating ethical, operational, and financial implications. First, Wald could confront the leadership directly, emphasizing the importance of accurate financial reporting and the potential legal consequences of misclassification. This might strain internal relationships but preserves professional integrity and compliance. Second, the team could seek external advice, such as consulting an ethics board or legal counsel, to validate reporting practices and ensure transparency. Third, they might agree to reclassify the inventory but do so transparently, documenting the rationale and informing the external auditors to maintain disclosure integrity.

Each alternative has distinct effects on stakeholder interests. Confronting leadership aligns with ethical standards but risks internal conflict and possible reprisal. Seeking external advice adds a layer of due diligence, fostering transparency but may delay decision-making. Transparent reclassification ensures compliance but might be seen as an admission of mismanagement, potentially damaging internal relationships. Conversely, ignoring or concealing issues could temporarily preserve relationships but would violate ethical standards, damage stakeholder trust, and pose legal risks.

If I were in Milton's position, I would prioritize transparency and legal compliance. Specifically, I would endorse reclassification of the motors as inventory, with full disclosure in the financial statements and explanation to external auditors. This approach upholds ethical standards, maintains stakeholder trust, and aligns with professional accounting principles. It also provides a clear record of governance and decision-making, which is vital for future audits and organizational integrity. Such transparency fosters a culture of ethical compliance, which is essential for long-term organizational sustainability.

References

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• American Institute of CPAs (AICPA). (2014). Code of Professional Conduct. AICPA.
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