How would you defend Mr. Hastings' position, no matter which side of the argument he chooses. Defend your position with accounting rules, practical knowledge, and by any other means necessary.
Steven Hastings, the financial controller of a professional sports team was looking over his financials as the company neared the end of its 2010 fiscal year. The team was suffering some financial difficulties and was currently seeking additional funding, in the form of bank loans, for its operations in 2011. The bank has requested that most recent financial statements as a foundation of its load assessment and will hold a final decision on the loan until after the 2010 fiscal year has been closed and the 2010 financial statements have been provided.
One of the major issues that Mr. Hastings was seeing as 2010 was coming to a close was the greatly reduced revenue in 2010, largely due to labor unrest that had cancelled 15 games in 2010. Due to a recent settlement between the league and labor union, the season would resume and all 15 games would be rescheduled and played in 2011. The revenue for those 15 games would have originally been generated in 2010 but would now be generated in 2011.
Mr. Hastings was looking at the financials with the intention of making sure the 2010 financial statements portrayed the company in the best position possible, as the funding was critical.
Accounting Ethical Issue -In a meeting with the CEO, Mr. Hastings noted that for the remaining games of the season (2010 - 2011), all of the seats were sold out. He also noted that from the holistic perspective, the individual seat purchases were 100% paid in full and the season ticket holders had already paid 90% of the remaining owed balance on their season plans. So from that perspective, the company had already received the bulk of its payments for the season. The CEO argued that the company should pull ahead the revenue for the 15 games cancelled in 2010 and rescheduled in 2011 for the following reasons:
Ø These games were planned and originally scheduled in 2010
Ø The games will be played in the same season due to the labor agreement
Ø The payments from tickets sales for these games has already been received
Mr. Hastings was faced with a decision: should he take a stance for or against pulling the revenue forward into 2010 based on the CEO's argument? How should he justify his position? What accounting rules could he use to support his position?