For the last five years, you have been a corporate accountant for Farrless Company, a public company

For the last five years, you have been a corporate
accountant for Farrless Company, a public company that has seen explosive
growth though acquisitions of smaller competitors in its industry, retail
pharmacy. Farrless’s CFO tells you that Farrless’s per store revenue for the
fiscal quarter, as yet not publicly disclosed, has dropped by 15 percent. As a
result, Farrless has had insufficient cash flow to pay some suppliers, many of
whom are refusing to ship additional inventory to Farrless until it pays its
outstanding debt to them. The CFO tells you he believes that the revenue drop,
while
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For the last five years, you have been a corporate
accountant for Farrless Company, a public company that has seen explosive
growth though acquisitions of smaller competitors in its industry, retail
pharmacy. Farrless’s CFO tells you that Farrless’s per store revenue for the
fiscal quarter, as yet not publicly disclosed, has dropped by 15 percent. As a
result, Farrless has had insufficient cash flow to pay some suppliers, many of
whom are refusing to ship additional inventory to Farrless until it pays its
outstanding debt to them. The CFO tells you he believes that the revenue drop,
while temporary, will continue for the rest of the fiscal year. Next year, he
says, per store revenue will be 20 percent more than last year’s historic high.
Consequently, to avoid a temporary drop in the market price of Farrless’s
stock, which will reduce the value of the CFO’s stock options and make it more
expensive for Farrless to raise capital, the CFO wants you to create false
accounting entries that will smooth Farrless’s revenues.

Can you identify the common characteristics of poor decision
making that the CFO is exhibiting? Draft a plan that will help you resist the
CFO’s request for you to make false accounting entries. What should you have
done during the five years you have been working for Farrless to help you now
resist the CFO’s request?

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