ATC 9-5 Ethical Dilemma Manipulating return on investment and residual income A widely recognized financial trick known as the "big bath" occurs when a company makes huge un warranted asset write-offs that drastically overstate expenses. Outside auditors (CPAs) permit compa- nies to engage in the practice because the assets being written off are of questionable value. Because the true value of the assets cannot be validated, auditors have little recourse but to accept the valuations suggested by management. Recent examples of write-offs include Motorola's $1,8 billion restructuring charge, Hewlett-Packard's $8 billion charge, and Microsoft's $7.6 billion charge. Required a. Why would managers want their companies to take a big bath? (Hint: Consider how a big bath af fects return on investment and residual income in the years following the write-off.) b. Annual reports are financial reports issued to the public. The reports are the responsibility of audi- tors who are CPAs who operate under the ethical standards promulgated by the American Institute of Certified Public Accountants. As a result, attempts to manipulate annual report data are not re- stricted by the Institute of Management Accountants Statement of Ethical Professional Practice shown in Exhibit 1.17 of Chapter 1. Do you agree or disagree with these statements? Explain your position