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Accounting Misstatement

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BYP4-9 As the controller of Take No Prisoners Perfume Company, 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 which was issued to banks and other creditors less than a month ago. After much thought about the consequences of telling the president, Rocky Balboa, about this misstatement, you gather your courage to inform him. Rocky says, "Hey! What they don't know won't hurt them. But, just so we set the record straight, we'll adjust this year's financial statements for last year's misstatement. We can absorb that misstatement better in this year than in last year anyway! Just don't make such a mistake again."
Instructions
(a) Who are the stakeholders in this situation?
(b) What are the ethical issues in this situation?
(c) What would you do as a controller in this situation?

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Solution Summary

The solution describes what an accountant at the Take No Prisoners Perfume Company should do when faced with an accounting misstatement and a CEO who doesn't want to address it properly.

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a) The stakeholders include me, Rocky Balboa, the company employees, banks and other creditors, and company shareholders.

b) The ethical issue involved in the situation is the potential violation of the matching principle. The marching principle ...

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