As the controller of Breathless 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, Jerry McNabb, about this misstatement, you gather your courage to inform him. Jerry 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 mis statement.We can absorb that misstatement better in this year than in last year anyway! Just don’t make such a mistake again.”
(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?