Governance and end-of-year actions. Janet Taylor is the new division controller of the snack-foods division of Gourmet Foods. Gourmet Foods has reported a minimum 15%

growth in annual earnings for each of the past five years. The snack-foods division has reported annual earnings growth of more than 20% each year in this same period. During the current year, the economy went into a recession. The corporate controller estimates a 10%

annual earnings growth rate for Gourmet Foods in this year. One month before the December 31 fiscal year-end of the current year, Taylor estimates the snack-foods division will report an annual earnings growth of only 8%. Warren Ryan, the snack-foods division president, is not happy, but he notes that “end-of-year actions” still need to be taken.

Taylor makes some inquiries and is able to compile the following list of end-of-year actions that were more or less accepted by the prior division controller:

a. Deferring December’s routine monthly maintenance on packaging equipment by an independent contractor until January of next year

b. Extending the close of the current fiscal year beyond December 31 so that some sales of next year are included in the current year

c. Altering dates of shipping documents of next January’s sales to record them as sales in December of the current year

d. Giving salespeople a double bonus to exceed December sales targets

e. Deferring the current period’s advertising by reducing the number of television spots run in December and running more than planned in January of next year

f. Deferring the current period’s reported advertising costs by having Gourmet Foods’ outside advertising agency delay billing December advertisements until January of next year or by having the agency alter invoices to conceal the December date g. Persuading carriers to accept merchandise for shipment in December of the current year although they normally would not have done so REQUIRED 1. Why might the snack-foods division president want to take these end-of-year actions?
2. The division controller is deeply troubled and reads the Code of Professional Ethics in Exhibit 1-7 (pp. 18-19). Classify each of the end-of-year actions as (i) acceptable or

(ii) unacceptable according to that document.

3. What should Taylor do if Ryan suggests that these end-of-year actions are taken in every division of Gourmet Foods and that she will greatly harm the snack-foods division if she does not cooperate and paint the rosiest picture possible of the division’s results?

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