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    CFO response to a mistake in issued financial statements

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    As the CFO of SAL Inc., you discover a misstatement that overstated net income in the prior year's financial statements. The misleading financial statements appear in the company's annual report that was issued to banks and other creditors less than a month ago. After much thought about the consequences of telling the president about this misstatement, you gather your courage to inform him. The president suggests that you simply adjust this year's financial statements since what the banks and creditors don't know won't hurt them.

    Answer the following questions:
    ? Who are the stakeholders in this situation?
    ? What are the ethical issues involved in this situation?
    ? What would you as a CFO do in this situation?

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    Solution Preview

    We aren't told whether the CFO is a CPA or not, and we don't know whether a CPA firm was involved in the financial statements. If either a CPA or a CPA firm is involved, there is no question about the procedure. The company must reissue their financial statements and attempt to recover the earlier version, plus inform stakeholders of the error.

    It is not uncommon for errors to be made, for whatever reason, but not reissuing and informing interested parties compounds the error. ...

    Solution Summary

    The solution examines the responsibilities of the persons involved in the presentation of the financial statements. The subsequent actions are discussed in terms of a CPA being involved or not, although the ultimate solution is the same. Further discussed are possible consequences of two different responses for a solution.