Reference no: EM132322284

Question

You run a company that sells dangerous chemicals but you are finding that it is a very competitive industry in which to work due to the costs of disposing of chemicals that can no longer be sold.

The warehouse is located near a river that flows into the local water supply reservoir where many of the locals enjoy swimming during the summer months.

There have been many unexplained serious illnesses from people who have been swimming in the reservoir. A couple of teenagers who were exploring the river area stumbled across a number of containers marked as poisonous and they called the EPA (Environmental Protection Authority) who conducted an audit of the area.

One of your particularly dangerous chemicals had not been sold for a long time as it had been linked to cancer. Whilst it was written down to zero in your accounting records you had not been able to dispose of it due to its toxicity as this would have cost your business a significant amount that you could not afford and still achieve your desired profit.

Through a review of your stock records it can be seen that the inventory was slowly decreasing every six months despite there being no market for the goods. Further investigation revealed that a couple of your employees had been directed to empty a barrel every so often into the river thinking it would dissipate and cause no impacts and would save you the expensive disposal fees.

Unfortunately, they left the empty barrels covered in shrubs and the illnesses that people had suffered, some of which could leave ongoing health issues, were directly traced to your business. It is currently unknown what the legal consequences and compensation will be to those parties injured by your company's actions however they are liable to be substantial given the type of chemical and its potential consequences.

So why reducing nature to a number is beneficial to the accounting?