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Dr. Steve
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Experience:  Ph.D., M.A., B.A.
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Resolved Question:

AFTER A FIVE-YEAR CAREER IN ASSURANCE SERVICES WITH A NATIONAL CPA FIRM with mostly large manufacturing clients, XXXXX XXXXXbell joined Hi-Quality Productions Inc. (Hi-Q) as manager of Manufacturing Accounting. She did not expect that this new position would make her face a serious ethical dilemma.

Hi-Q is a publicly held company producing components for the automotive industry. It has three divisions, and all are very labor intensive. In Alpha Division, the largest, one operation uses a highly automated process. For a number of years, Hi-Q's board and top management outsourced this operation to avoid making a large capital investment in technology they viewed as constantly changing.

Each operating division of Hi-Q has a budget committee. Two years ago, the Alpha Division budget committee presented to the board its analysis indicating significant net cost savings could be achieved by bringing the high-tech operation in house. This required capital investment of approximately $4 million. The board approved the proposal, and the investment was made. Later that same year, XXXXX XXXXXbell was promoted to assistant corporate controller. In this position, she sits on the capital budget committee of all divisions.

A little more than a year after the high-tech process was put into operation, the board requested a post-audit review of the actual cost savings. When the board requests such reviews, the members of the capital budgeting committee of each division provide them. As previously noted, XXXXX XXXXXbell now participates in these reviews.

When information for a post-audit review of cost savings is analyzed, the budget committee meets to review the report before it is sent to the board. During this process, XXXXX XXXXXbell noted that several of the projections in the original proposal were very aggressive. These included a very high salvage value for the equipment as well as an excessively long useful life over which cost savings were projected to occur. If more realistic projections had been used, Amy doubted that the board would have agreed with the investment.

Also in the post-audit review, Amy noted that substantial amounts of incremental service department operating costs directly caused by the new investment were not being directly charged. Instead these costs were being allocated as general overhead. In addition, she noted that the estimated rate for spoiled and defective work contained in the proposal was being used in the review rather than the actual rate, which was considerably higher.

When XXXXX XXXXXbell brought these points to the attention of the division's capital budgeting committee, she was told that as the new member of the committee she should act as an observer rather than as a participant. When Amy continued to express her concerns, she was firmly informed that it had been the unanimous decision of the committee to recommend approval of the original proposal because it was thought to be in the best long-run interest of the company. And given this consensus, it was felt that certain "adjustments and exceptions" to the post-audit review process were justified to ensure the overall long-run wellbeing of the company.

1. What should Amy do?
2. Do you have any suggestions for revising the way in which postaudits are conducted at Hi-Q?
Submitted: 5 years ago.
Category: Homework
Expert:  Dr. Steve replied 5 years ago.

How many words does this report require?

Speak to you soon,
Customer: replied 5 years ago.
Expert:  Dr. Steve replied 5 years ago.
Thank you for your message.

Could you also tell me when you need this report to be completed?
Customer: replied 5 years ago.
ASAP please, the latest by 8:00 pm EST
Expert:  Dr. Steve replied 5 years ago.

I have already started the report. I will be sure to have it completed on schedule.
Customer: replied 5 years ago.
Thank you sir
Expert:  Dr. Steve replied 5 years ago.

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