Case Problem:
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?
Your answer must be typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.