A crucial role of financial managers is in making financial decisions and exercising control over finances in the organization. They make use of techniques like ratio analysis, financial forecasting, profit, and loss analysis, among others. Imaging you are the CFO of a multinational corporation and part of your daily tasks are the making of financial decisions, and one specific of those decisions will boost this quarter earnings but will impact stock market value. What should you do? Implement your decision or modify it to halter the potential impact of stock value?

A crucial role of financial managers is in making financial decisions and exercising control over finances in the organization. They make use of techniques like ratio analysis, financial forecasting, profit, and loss analysis, among others. Imaging you are the CFO of a multinational corporation and part of your daily tasks are the making of financial decisions, and one specific of those decisions will boost this quarter earnings but will impact stock market value. What should you do? Implement your decision or modify it to halter the potential impact of stock value?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter16: Statement Of Cash Flows

Section: Chapter Questions

Problem 3TP: Consider the dilemma you might someday face if you are the chief financial officer of a company that...

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Consider the dilemma you might someday face if you are the CFO of a company that is struggling to satisfy investors, creditors, stockholders, and internal company managers. All of these financial statement users are clamoring for higher profits and more net assets (also known as equity). If at some point, you suddenly found yourself not meeting the internal and external earnings and equity targets that these parties expect, you would probably search for some way to make the financial statements look better. What if your boss, the CEO, suggested that maybe you should make just one simple journal entry to record all the goods that your company is holding on consignment, as if that significant amount of goods were owned by your company? She might say that this action on your part would fix a lot of problems at once, since adding the consigned goods to merchandise inventory would simultaneously increase net assets on the balance sheet and increase net income on the income statement (since it would decrease cost of goods sold). How would you respond to this request? Write a memo, detailing your willingness or not to embrace this suggestion, giving reasons behind your decision. Remember to exercise diplomacy, even if you must dissent from the opinion of a supervisor. Note that the challenge of the assignment is to keep your integrity intact while also keeping your job, if possible.
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