Ethics Case BYP4-7 As the controller of Take No Prisoners Perfume Company, you d

Question

Ethics Case BYP4-7 As the controller of Take No Prisoners Perfume Company, you discover a misstatement that overstated net income in the prior years financial statements. The misleading financial statements appear in the company's annual report which was issued to banks and other creditors less thana month ago. After much thought about the consequences of telling the president, Mike Flanary, about this misstatement, you gather your courage to inform him. Mike says, "Hey! What they don't know won't hurt them. But, just so we set the record straight, we'll adjust this years financial statements for last year's misstatement. We can absorb that misstatement better in this year than in last year anyway Just don't make such a mistake again." Instructions (a) Who are the stakeholders in this situation? (b) What are the ethical issues in this situation? c) What would you do as a controller in this situation?

Explanation / Answer

(a) In this case, Banks and other creditors to whom financial statments are prsented and they make any decision based on the financials are stakeholders in this situation.

(b) As per the case, company's financial statements are misleading. Based on this report, many interest patries will not be able to know company's real financial position. So when controller tried to convey misstatment to the President, he also does not want to show correct statement. Hence controller has to face such an ethical issue.

(c) We will try to convice President that misstatement should be brought into consideration of bank and other creditors and also should prepare correct financial statement for the company. If he is not convinced, then it should be brought inti consideration of CEO and Shareholders of the company.

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