Heidi Hart, the vice president of financial operations for Castle Candy Manufact

Question

Heidi Hart, the vice president of financial operations for Castle Candy Manufacturing Company and the controller, Linda Brown, are reviewing the financial statements for the prior two years of 2013 and 2014. Heidi notes that the gross profit margin on sales has increased significantly for 2014 over 2013. Linda is aware that a major reason for the increase is the company's decision to reduce the estimate of warranty and bad debt expense. Heidi is preparing a media communication emphasizing the company's efficiency in controlling costs and she believes this is the reason for the increase in gross profit. Linda is not sure whether to tell Heidi the real reason for the increase.

What is the ethical dilemma in this situation?

Should Linda remain silent? Why or why not?

What responsibility does Linda have for the representations in the media release?

Explanation / Answer

The ethical dilemma is for Linda. She as a Controller has the responsibility that true and fair financial statements are presented to the stakeholders of the compnay. On the othre hand the the Financial statement prepared has a willful decision of the management to reduce bad debt and warranty expense estimates to increase the gross profit margin . This is willful misstatement but the same is being done as a supporting for the media communication by Heidi , the VP , emphasizing the company's cost control effeciency . As a controller Linda should inform Heidi about the true reason of gross profit increase and should convince him not to artficially inflate profit.

Linda should not remain silent. She should inform Heidi Hart about the misstatement as the Controller should take care that Stakeholders of the company get the true and fair financial statements. She must try to persuade Heidi not to release the media representation with a false statement and misguide the stakeholders.

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