disclosure of estimates

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:

  1. What, if any, is the ethical dilemma in this situation?
  2. Should Lilly, the controller, remain silent? Give reasons.
  3. What stakeholders might be affected by Tercek’s media release?
  4. 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.”

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Full disclosure in financial reporting.Intermediate accounting (16th ed.). (p. 1457). New York, NY: John Wiley & Sons, Inc.

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