The CEO of a public company predicted to analysts and shareholders that earnings would grow over 25% for the year. Unfortunately, during the second half of the year sales softened and the CEO has now concluded within the last quarter that it will be impossible to meet the earlier predicted earnings growth of over 25% unless drastic action is taken. As a result, the CEO has ordered that whenever possible, expenditures should be postponed until the following year, routine maintenance and training should be suspended, and advertising and travel should be reduced significantly.  Additionally, the CEO has ordered the CFO and Controller to carefully scrutinize all costs that are currently classified as period costs and reclassify as many as possible to product costs. The Company expects a substantial increase in inventories at the end of the year.

Do you believe the CEO’s actions are ethical? Why or why not? Share the basis for your conclusion.

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