Grace McQuillan, president of McQ Industries, wishes to issue a press re- lease to bolster her company's
Question:
Grace McQuillan, president of McQ Industries, wishes to issue a press re- lease to bolster her company's image and maybe even its stock price, which has been gradually falling. As controller, you have been asked to provide a list of 20 financial ratios along with some other operating statistics relative to McQ Industries' first-quarter fi- nancials and operations. Two days after you provide the ratios and data requested, you are asked by Minh Ly, the public relations director of McQ, to prove the accuracy of the financial and operat- ing data contained in the press release written by the president and edited by Minh. In the news release, the president highlights the sales increase of 25% over last year's first quarter and the positive change in the current ratio from 1.5:1 last year to 3:1 this year. She also emphasizes that production was up 50% over the prior year's first quarter. You note that the release contains only positive or improved ratios and none of the negative or deteriorated ratios. For instance, no mention is made that the debt to total assets ratio has increased from 35% to 55%, that inventories are up 89%, and that al- though the current ratio improved, the current cash debt coverage ratio fell from .15 to .05. Nor is there any mention that the reported profit for the quarter would have been a loss had not the estimated lives of McQ's plant and machinery been increased by 30%. Minh emphasized, "The Pres wants this release by early this afternoon." Instructions
(a) Who are the stakeholders in this situation?
(b) Is there anything unethical in president McQ's actions?
(c) Should you as controller remain silent? Does Minh have any responsibility?
AppendixLO1
Step by Step Answer:
Financial Accounting Tools For Business Decision Making
ISBN: 9780471691952
3rd Edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso