Contours Co. is experiencing a decrease in sales and operating income for the fi

Question

Contours Co. is experiencing a decrease in sales and operating income for the fiscal year ending July 31, 2014. Mark Irwin, controller of Contours Co., has suggested that all orders received before the end of the fiscal year be shipped by midnight, July 31, 2014, even if the shipping department must work overtime. Since Contours Co. ships all merchandise FOB shipping point, it would record all such shipments as sales for the year ending July 31, 2014, thereby offsetting some of the decreases in sales and operating income.

Discuss whether Mark Irwin is behaving in a professional manner.

Explanation / Answer

Mark Irwin is not behaving in a professional manner.

Shipping all orders received before the end of the fiscal year in order to set off the decrease in sales and operating income will not provide true & fair view of the financial statements. Since these orders were to be shipped in the next fiscal year but were shipped these year will result in increase in sales these year and decrease in sales of next year, ultimately it will have effect that Financial statement will not show true & fair view for two financial year.

Also, the decision made based on the misstated financial statement will also be misleading/ incorrect.

Also, all the users of financial statement will not get correct information about the companies sales and income

Thus, Mark Irwin is not behaving in professional manner

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