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. SpencerA????1s 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
yearA????1A????1by the time the accounting year ends, the sales will have actually occurred.


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 SpencerA????1s request? Why?
3. If you were SpencerA????1s manager and you discovered his plan, how would you respond?
4. Are there other courses of action Spencer could take?