Ethics Case 3-16
You are in your third year as an accountant with McCarver-Lynn Industries, a multidivisional company involved manufacturing, marketing, and sales of surgical prosthetic devices. After the fiscal year-end, you are working with the controller of the firm to prepare supplemental business segment disclosures. Yesterday you presented her with the following summary information: ($ in millions)
Union of South Africa
Upon returning to your office after lunch, you find the following memo:
Nice work. Let’s combine the data this way.
($ in millions)
Some of our shareholders might react unfavorably to our recent focus of South African operations. Required:
Do you perceive an ethical dilemma? What would be the likely impact of following the controller’s suggestions? Who would benefit? Who would be injured?
When it comes to the suggestion that the controller presented to you, it does show an ethical dilemma, and because of the change in representation of geographic areas, but for the reason why it was changed. In the memo the controller stated that the reason for the change was because some shareholders might react unfavorably to the focus of South African operation, giving this reason shows that the company is trying to hide things from their shareholders. “Reporting every business unit separately could become a burdensome process. So, in practice, management sometimes exercises the right to ‘lump together’ operating units that are similar or related. (Operating Segments: Improving Disclosure From the Bottom Up, 2011)” According to the U.S. GAAP companies are required to report certain geographic information that” can be...
References: Operating Segments: Improving Disclosure From the Bottom Up. (2011, November). Retrieved January 30, 2013, from PWC: http://www.pwc.com/gx/en/audit-services/publications/corporate-reporting/investor-view/operating-segments-improving-disclosure-from-bottom-up.jhtml
Epstein, B. J., & Jermakowicz, E. K. (2009, April). IFRS Converges to U.S. GAAP on Segment Reporting. Retrieved January 30, 2013, from Journal of Accountancy: http://www.journalofaccountancy.com/Issues/2009/Apr/20081008.htm
Nelson, M. W., Sepe, J. F., & Spiceland, D. J. (2013). Intermediate Accounting. New York: McGraw-Hill Irwin.
Ryrie, C. C. (1995). Ryrie Study Bible. Chicago: The Moody Bible Institute.
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