1. Identify the stakeholders in the case and their interests.
The first stakeholder in this situation is Frank Campbell and his other upper management of the South Division. Their interests are meeting their sales goals and keeping their jobs intact. The next stakeholder is the company itself, trying to get ready to go public. Their interest is showing their entire company is strong, and not just a few areas to try and maximize their initial stock value. Tony Cupertino is the next one, as the head of the internal audit team because his reputation is on the line as if he puts through revenue that should not be recognized, how can he be trusted when it comes to the auditing process. The final stakeholders I see are the two companies receiving the orders in question, Bilco and Allen Corporation, as their relationship with United could be affected by how this situation plays out going forward.
2. Describe the ethical and professional responsibilities of Tony Cupertino.
I think the ethical and professional responsibilities of Tony Cupertino should be the same in this situation. Frank Campbell is playing with fire here when it comes to these two orders. I know hes worried about not meeting his sales goals and everything that goes along with it, but by shipping these orders our a month or two in advance, this could drastically change the relationship with those two companies going forward. Seeing that this division is already lacking in sales overall, this could lead to rather large orders being cancelled in the future and giving them a reputation of not following through on the agreed upon terms when it comes to this. Tony should go back to Tony and really say this cannot go through like this since the contract terms are not being followed. Now if Frank is able to change the terms with the company, then those amounts can be recognized, but I do not think anything outside the contract parameters should be recognized.
Assume you are in Tony Cupertino’s position and know you have to do something about the improper accounting in the Southern sales division. Consider the following in crafting a plan how best to voice your values and take appropriate action:
3. How can you get it done effectively and efficiently?
I think Tony needs to go to the Audit Committee and explain the situation, how the contracts are laid out, and what is at stake if the revenue is recognized the way it is written out right now. This could lead to people stating the financials are misleading and not to be trusted and could really affect how the stock is presented when it goes public the next year. He needs to gather all the information and bring it to them right away and not waste time.
4. What do you need to say, to whom, and in what sequence?
He needs to go the audit committee and explain the situation, as the reason why recognizing the revenue this way is a bad idea and could lead to misstatements in the eyes of the public. Once he explains all of that, he needs to go the board and explain why this is a bad idea to recognize it the way it is being written now. You do not want anybody questioning your financials, especially when it comes to taking a company public. Tony will want to explain that missing the sales target in one region is better than meeting them in all regions, but then making misstatements at the same time. This could lead the public or outside analysts to question the legitimacy of the entire financials as a whole, not just the one regions. This could lead to consumer mistrust and erosion of the stock price, leading to way more problems than just one misstated sales revenue.
5. What will the objections or pushback be?
People will pushback stating how important sales goals are to meet, and technically the sales have been made, just changing the recognition part slightly. They will push about the company going public in 2019 and how important it is to look as healthy as possible going into that and making sure there are no weak areas when it comes to the company. They will argue all people will see are the numbers and that the company is meeting all goals and expectations and not worry about a couple sales being recognized a tad early.
6. What would you say next? What data and other information do you need to make your point and counteract the reasons and rationalizations you will likely have to address?
Tony should again point out that this thinking is a very short term outlook and not one looking at the future. If the revenue is recognized early, with the shipments going out early, this could damage the relationship between United and the two companies going forward. They could decide to not do business with United anymore, since United breaks the terms of the contracts. On top of that, if it is discovered that revenue is being recognized early and the financials are being manipulated, this could change the outlook the public has on the company as a whole. When a company first goes public, they want to make sure they are squeaky clean with no red flags, and this would certainly rise up as a red flag and would maybe stop potential investors from investing in the company. Tony should also show how all other transactions of similar situations are being recorded. It is better to have one division come in a bit under the goal, rather than all of the company meet the goal, but also being misleading at the same time.
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