Reference no: EM133104108

Question - In a meeting with financial analysts at the beginning of the year, the Chief Executive Officer (CEO) of the company predicted that the company's profits would grow by 25% this year.

Unfortunately, sales have been less than expected for the year. Two weeks before the end of the year, the CEO concluded that it would be impossible to ultimately report an increase in profits unless some drastic action was taken. Accordingly, the CEO has ordered whenever possible, expenditures should be postponed to the next year - including cancelling or postponing orders with suppliers, delaying planned maintenance and training and cutting back on end-of-year advertising and travel.

Additionally, the CEO ordered the company's financial controller to carefully scrutinise all costs that are currently classified as period costs and reclassify as many as possible as product costs. The company is expected to have substantial inventories of work in process and finished good at the end of the year.

(i) Based on the above situation, explain the significance of the accounting information to the CEO.

(ii) Do you believe that the CEO's actions are unethical? Justify your answer.