1601 Words Jul 19th, 2008 7 Pages
Case 1.4 AMRE, Inc.

1. Generally, ethics refer to moral principles and values. Random House Webster’s College Dictionary notes that ethics are “the rules of conduct recognized in respect to a particular class of human actions or governing a particular group, culture, etc.” An individual's ethics generally define what that individual believes to be right and wrong. Professional ethics are typically expressed by a code of conduct adopted by an organization that represents a profession. Professions adopt such codes to encourage moral conduct among their members.

Following is a list of the individuals involved in the AMRE case:

Robert Levin, Chief Operating Officer
Dennie Brown, Chief Accounting Officer
Walter Richardson, Vice President
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Although he may have lost his job, he would have avoided being sanctioned by the SEC. Most important, this course of action would have prevented innocent parties, such as potential AMRE investors and creditors, from being harmed by the fraudulent scheme.

4. The relevant accounting concept in this context was the matching principle. The matching principle requires that expenses be matched with the revenues they produce. A cost can be deferred--treated as an asset--when it is expected that the cost will produce future economic benefits (generally, revenue). It seems reasonable that a portion of AMRE’s advertising costs benefited future periods and, thus, could be appropriately deferred. Nevertheless, AMRE’s policy of deferring all of the advertising costs related to unset leads was very aggressive and probably resulted in the booking of assets that would provide no future benefits for the company.

5. Listed next are key audit risk factors that were present during the 1988 and 1989 AMRE audits. a. AMRE's management had a strong incentive and desire to maintain the company's stock price at a high level.
b. AMRE’s unset leads increased dramatically during 1988.
c. The company’s inventory also increased significantly during 1988 and increased much more rapidly than the company’s sales.
d. The efforts of AMRE’s executives to influence important audit planning decisions should have been of concern to the auditors.
e. The

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