Archie R. Scott, Jr.
Ethics Case Project 1
Dr. N. Amoah
As the Chief Financial Officer for Camp Industries, I am overall responsible for the information contained in the Financial Statements for the company that shareholders use in making investment decisions and creditors use in making credit decisions. Camp Industries is the defendant in a class action suit filed in the amount of $44 million. After an informal conversation with in house legal counsel, I learn that it is remote that the company will win this lawsuit and our counsel feels that we will probably lose $30 million. Upon sharing this information with a co-worker, it is pointed out that accrual of loss ...view middle of the document...
Once the two criteria have been established, then the FASB Codification states “an estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met:
a. Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss.
b. The amount of loss can be reasonably estimated”. (FASB Accounting Codification Standards, 2013)
Ethical Dilemma and Stakeholders
The ethical dilemma in this case is whether I have an obligation to protect the company or to provide full disclosure to users of the financial statements. While the idea of “whether or not” to do something seems relatively cut and dry, this dilemma has several options, which help muddy the waters for this decision. The options are: a) do nothing, don’t accrue the liability and also don’t disclose the possible loss contingency in the notes of the financial statements, b) don’t accrue the liability, but disclose the loss contingency from litigation in the notes of the financial statements, and c) Accrue the liability and explain the loss contingency in the notes of the financial statements.
Options “a” and “b” allow me to protect the company’s interest, while at the same time, set the stakeholders up for potential failure. While options “b” and “c” allow me to protect the stakeholders, even though option b is only minimal protection, while at the same time, I am creating potential problems for the company. While this decision seems relatively easy based on the information presented in the introduction, it is not always easy to face the pressure of management and the stakeholders in making this decision.
The stakeholders are those who have a vested interest in how this situation is handled. Whether they are stockholders who have invested their money into the company and are looking to make a profit as the company’s success drives up the stock price, or they are potential investors looking to make an investment in the company in hopes of future gains, or they are current and future creditors studying the company’s financial statements to determine future credit worthiness, or they are management and employees who work on a daily basis to see the company succeed, and could have part of their investment portfolio tied up in the company, or me as the CFO, as it is my values and my job at stake in this decision, and finally, the members of the class action lawsuit, they could lose information that my help their case based on this decision.
Stockholders tend to be the...