Accounting help?

Question

You are the assistant controller for a public company. Wall Street stock analysts are projecting an earnings per share figure of $0.25 for your company. On December 29, a large customer returns a very large shipment of your goods that were defective. You tell the controller about the customer return and that the debit to sales return and allowances will have the effect of reducing earnings per share from $0.25 to $0.24. The controller indicates that failing to meet the consensus earnings expectations of the analyst community will result in a large stock price decline. The controller suggests waiting until January 2 (your company operates on a calendar year-end basis) to record the customer return. What should you do?

Answer 1

The answer depends on ethical considerations as well as legal regulations. If the controller wants you to delay booking the customer return in order to present higher earnings for the year, this is likely illegal and could result in serious penalties against the company. Further, it could be considered fraud if a full disclosure of the effect of the return on earnings was not made after January 2. As a fiduciary of the company, your responsibility is to ensure that all financial transactions are fairly stated in compliance with Generally Accepted Accounting Principles (GAAP). You should arrange a meeting with an independent third party professional, such as a lawyer or accountant, to discuss the situation and weigh your legal and ethical options.