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    Financial Crisis: SEC Required Press Release and Internal Memo

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    The company with which you are currently employed is experiencing a financial crisis. The Chief Financial Officer (CFO) has suddenly resigned and no one is discussing the reasons why. The U.S. Securities and Exchange Commission (SEC) is investigating your company's accounting practices and from the documents they have requested, the issue seems to concern revenue recognition. Rumors are beginning to circulate that suggest inappropriate behavior on the part of your company. The organization is a publicly traded company, and as such, the company is required to issue a public notice concerning the sudden vacancy of the CFO. As a Certified Public Accountant (CPA) on the team drafting the notice, you are involved in communicating the current situation to the general public.

    Write a press release. You may conduct research to find examples of public notices of this same nature. Use the examples to determine how you will format your press release. Then write an accompanying internal memo no more than 2 pages in length to your manager that includes the following:

    - Outline what your company is legally required to do.
    - Explain the value of the public communication in this situation.
    - Examine the balance between calming external stakeholders and the ethical considerations of providing all the information that is required by the SEC.
    - How the perception of the press release will affect public opinion

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    Solution Preview

    Press Release

    Company XYZ Inc. that has widespread business relating to online sales of books has been in press in relations to its financial performance. The company informs that public that XYZ Inc.'s financial statements have been filed in time with the SEC and the finances have shown a growth of 3.5% in revenues compared with 3.2% growth during the same quarter last year. A similar increase in profitability has been reported. The reason is that there is an increase in the online sales of computer books.

    The company Chief Financial Officer has resigned because of personal reasons and the company has already a public notice announcing the vacancy of the position has been released in the press. This notice is schedule to appear in leading national newspapers next week. The outgoing CFO has given us a letter mentioning that he is resigning from the position because of personal reasons and not for any other reason.

    Presently, we have received some enquiries from the US Securities and Exchange Commission and we are providing them with all the information and documents required by them. Their inquiries are focused on two sales made during the last month of the accounting period and relates to recognition of revenue relating to ...

    Solution Summary

    The solution explains the company's legal obligations and then ethical and strategic reasons for how much to disclose in relation to the effect it will have on stakeholders and public opinion, all in a memo of 845 words.