Within the case of Wayne Terrago, the stakeholders involved in this ethical issue involve the employees, investors, customers, and suppliers. The employees are involved because they are the ones determining on how the issues are being labeled in regards to the accounting. The investors are involved because they are the ones effected by the decisions the employees make. The customers are involved because they will be buying from the company. The suppliers are involved because if the product is not being moved or if the company loses investor they will not have the money to continue to buy supplies. The ethical issues involved in this situation are the company cannot agree on where and how to report the advertising costs. Most of the employees want to miss label the advertising costs because they are not sure if advertising has been successful or not. I do not agree with the president’s decision to label the advertising costs as inventory rather than advertising costs because that expense should be able to be seen by the stakeholders in the company. As for the product that is moving slowly it should be labeled as inventory because that is exactly what it is, inventory weather it is moving slowly or not. The point in a company when you have investors is to be transparent and not trying to hide things from the investors.

Ethics Case BYP1-6
Wayne Terrago, controller for Robbin Industries, was reviewing production cost reports for the year. One amount in these reports continued to bother him—advertising. During the year, the company had instituted an expensive advertising campaign to sell some of its slower-moving products. It was still too early to tell whether the advertising campaign was successful.

There had been much internal debate as how to report advertising cost. The vice president of finance argued that advertising costs should be reported as a cost of production, just like direct materials and direct labor. He therefore recommended that this cost be identified as manufacturing overhead and reported as part of inventory costs until sold. Others disagreed. Terrago believed that this cost should be reported as an expense of the current period, based on the conservatism principle. Others argued that it should be reported as Prepaid Advertising and reported as a current asset.

The president finally had to decide the issue. He argued that these costs should be reported as inventory. His arguments were practical ones. He noted that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering. Also, by reporting the advertising costs as inventory rather than as prepaid advertising, less attention would be directed to it by the financial community. Instructions (a) Who are the stakeholders in this situation? (b) What are the ethical issues involved in this situation? (c) What would you do if you were Wayne Terrago?