01 Jul Disclosure of Estimates
Question Description
Nancy Tercek, the financial vice president, and Margaret Lilly, the controller, of Romine Manufacturing Company are reviewing the financial ratios of the company for the years 2017 and 2018. The financial vice president notes that the profit margin on sales ratio has increased from 6% to 12%, a hefty gain for the 2-year period. Tercek is in the process of issuing a media release that emphasizes the efficiency of Romine Manufacturing in controlling cost. Margaret Lilly knows that the difference in ratios is due primarily to an earlier company decision to reduce the estimates of warranty and bad debt expense for 2018. The controller, not sure of her supervisor’s motives, hesitates to suggest to Tercek that the company’s improvement is unrelated to efficiency in controlling cost. To complicate matters, the media release is scheduled in a few days.
Answer the following questions in the Discussion Board:
What, if any, is the ethical dilemma in this situation?
Should Lilly, the controller, remain silent? Give reasons.
What stakeholders might be affected by Tercek’s media release?
Give your opinion on the following statement and cite reasons: “Because Tercek, the vice president, is most directly responsible for the media release, Lilly has no real responsibility in this matter.”
Just do make response each posted # 1 to 3 down below only
Posted 1
Hello all,
As a public company they are required to give a full disclosure of financial statements. “The full disclosure principle is a concept that requires a business to report all necessary information about their financial statements and other relevant information to any persons who are accustomed to reading this information.” In this case presenting the information to the public would give them misleading information of the profit margin on sales ratio. Being the controller, Lilly should not remain silent, because it is her responsibility to give full knowledge of the preparation of financial statements as it is her duty. The current and future investors may be affected by the media release. A lot individuals who are especially interested in investing wait for such releases in order to make their decision of investing or not. This would give them false information, and therefore they would be negatively affected as a result.
“Because Tercek, the vice president, is most directly responsible for the media release, Lilly has no real responsibility in this matter.”
This statement is false, because as the controller Lilly has the responsibility to ensure the information presented and released to the media is accurate and true.
Posted 2
Hello Prof. and classmates,
That due to time convenience if don’t choose to be clear and specific in media they will be giving wrong information to investors. No Lilly should speak up and make sure the company fixes issues before some arise. Well if information is unrelated to what investors look for they might be making future decisions on incorrect data. Well if you know something and don’t speak up it can later effect you. When someone higher up looks foolish and has to apologize and your job is to point out these errors might be the one they blame in the end.
Posted 3
The ethical dilemma in this situation would be that Margaret Lilly knows that the profit margin on sales ration only increased from 6% to 12 % due to primarily to an earlier company decision to reduce the estimate of warranty and bad debt expense for 2018. With this information in hand she needs to decide if she should tell Nancy Tercek, the financial vice president who is about to issue a media release emphasizing the efficiency of Romine Manufacturing in controlling cost. Margaret isn’t sure of Nancy’s motives and she is hesitating.
Margaret Lilly should make known all information available to her to Nancy Tercek, her supervisor, it is up to the supervisor to use or pass that information onward. If something doesn’t seem right or needs to be double checked, do it and let your supervisor know. If they decide not to do anything about and it becomes a big deal later you have yourself covered. Your job is to help the stockholders of the company and fudging numbers may only help in the short run but only comes back in swarms and you and the company can suffer deeply. Think smart, with reason, and don’t stay quiet.
Current stockholders- deciding if they should hold/sell/buy
Future stockholders- watching the stock and if the stock has been going up quick then they may want to make a quick buck. Not knowing that it could go back down without any notice. Market manipulation
Lilly is the controller; she oversees the financial reporting of the company and may have many more roles. It is her responsibility to let Tercek know all information relating to the financial ratios and how she got to those numbers. This one in particular in this case rose 6% and appears to be uncommon so it is Lilly’s responsibility to explain those numbers to Tercek and then it is up to Tercek to share that info truthfully and ethically to who she needs too.
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