Yang Electronics Company (YEC) developed a high-speed, low-cost copying machine marketed primarily for home use. However, as YEC customers learned how easy and inexpensive it was to make copies with it, sales to small businesses soared. Unfortunately, the heavier use by these companies caused breakdowns in a component of the equipment that had been designed only for light use. The copiers were guaranteed for two years, regardless of the amount of usage. Consequently, YEC began to experience high costs for replacing the damaged component.

As the quarterly meeting of YEC’s board of directors approached, the CFO asked Mark Chua, assistant controller, to prepare a report on the situation. It was hard to predict the exact effects, but it seemed that many business customers were starting to switch away from the YEC copier to more expensive copiers sold by competitors. It was also clear that the increased guaranteed costs would significantly affect YEC’s profitability. Mark summarized the situation in writing as best he could for the board.

Alice Martinez, YEC’s CFO, was concerned about the impact of the report on the board. She did not disagree with the analysis, but she thought it would make management look bad and might even lead the board to discontinue the product. She was convinced from conversations with the head of engineering that the copier could be slightly redesigned to meet the needs of high-volume users, so discontinuing it might pass up a potentially profitable opportunity.

Martinez called Chua into her office and asked him to delete the part of his report dealing with the component failures. She said it was all right to mention this orally to the board, noting that engineering is nearing a solution to the problem. However, Chua felt strongly that such a revision in his report would mislead the board about a potentially significant negative impact on the company’s earnings.

How should Chua resolve this situation?