Requirements 1. What is the fundamental ethical issue? Who are the affected parties? 2. If you were a sales representative at Darby Company, how would you respond to Spencer’s request? Why? 3. If you were Spencer’s manager and you discovered his plan, how

Spencer Wilkes is the marketing manager at Darby Company. Last year, Spencer recommended

the company approve a capital investment project for the addition of a

new product line. Spencer’s recommendation included predicted cash inflows for five

years from the sales of the new product line. Darby Company has been selling the new

products for almost one year. The company has a policy of conducting annual postaudits

on capital investments, and Spencer is concerned about the one-year post-audit

because sales in the first year have been lower than he estimated. However, sales have

been increasing for the last couple of months, and Spencer expects that by the end of

the second year, actual sales will exceed his estimates for the first two years combined.

Spencer wants to shift some sales from the second year of the project into the

first year. Doing so will make it appear that his cash flow predictions were accurate.

With accurate estimates, he will be able to avoid a poor performance evaluation.

Spencer has discussed his plan with a couple of key sales representatives, urging them

to report sales in the current month that will not be shipped until a later month.

Spencer has justified this course of action by explaining that there will be no effect on

the annual financial statements because the project year does not coincide with the fiscal

year––by the time the accounting year ends, the sales will have actually occurred.