Integrity and due care is a key aspect of every management in an organization. Primarily, the ability of an organization’s management ability to set the tone on the compliance to professional accounting standards requires them to be at the forefront in adopting and enforcing these policies. While Alum Industries has been having difficulty in developing engines, the failure to conduct adequate tests on the functionality of their engines is not excusable. In fact, all engineering equipment must be adequately tested before being sold to customers. By so doing, the company’s management will be exercising due care as stated in the AICPA code (0.300.060 Due Care). In addition, the management should have the integrity of ensuring that their accounting information reflects the true and fair position of the company. In this case, the desire to make profits should not result in the company using dubious means of replacing parts and allocating this expense to the research and development department. In fact, the development of weak and untested engines may damage the company’s reputation. This method of business arrangement may destroy the overall reputation and performance of the company in the long-term and does not be able to meet the AICPA code of integrity (0.300.040 Integrity) (AICPA).
The CEO should summon the president of the manufacturing department to an immediate meeting with him in order that he may explain why he decided to use this fraudulent tactic. He should warn him against his action and his non-disclosure of engineering affairs to both the company’s internal auditors and the company’s top management. Further, the CEO should demand an immediate stoppage in the manufacture of the untested engine. He should also recall the sold engines. The summoning of Henry Holstrom would ensure that all employees become aware that they are answerable to the key management of the company and that they must consult them before making certain decisions. It will also ensure that all employees become aware of the company’s objective of always exercising due care and integrity in its affairs. The recalling of all engines will ensure that the company’s image and reputation do not get damaged once these engines begin to fail. It may also save the company huge financial penalties that may be caused by legal cases questioning why it sold bad and untested engines.
AICPA. Code of Professional Conduct. New York, NY: American Institute of Certified Public Accountants, Inc. (2016). Print.