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    Ethical issues: delaying payments, huge discounts at YE

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    Auditors found out that a company was delaying payments to creditors at year-end and selling inventories as huge discounts in order to improve cash flows. Are there any ethical issues involved in this practice? What are they if any?

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    Solution Preview

    Here are a few ethic issues to consider:

    1. Selling inventory at huge discounts can be a way to shift sales into the current period, not just to improve cash flow. That creates a shortfall in the next period that must be dealt with next time. How will you fix the next period? Offer more discounts? If demand is low, and you "steal" demand from another period, you are misleading those that read your financial statements because ...

    Solution Summary

    The solution discusses ethical issues when delaying payments and giving huge discounts at year end.