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Case Larry Plant, the CFO of Castle Manufacturing Inc., was involved in a lengthy discussion with Joyce Tang of the company's auditing firm, Bennett &
Case Larry Plant, the CFO of Castle Manufacturing Inc., was involved in a lengthy discussion with Joyce Tang of the company's auditing firm, Bennett \& Sange, at the conclusion of the audit ficldwork. "Look Joyce, we just can't afford to show that much profit this year. If we do record the S1 5 million after-tax adjustment you propose, our profit will be 20% higher than we had two years ago and 5% higher than we reported last year. On the other hand, without the adjustment, we would be close to last year's level. We are just about to enter negotiations with our labor unions, and we have been complaining about our ability to compete. If we show that much profit improvement, they will ask for a huge raise in rates. Our company will become noncompetitive due to higher labor rates than our offshore competition. Do you really want that to happen?" "But Larry, you really earned the profit. You can't just ignore it!" "No, I'm not suggesting that, Joyce. But virtually all of the goods making up the profit adjustment were in transit at our year end - so let's just record them as next year's sales and profits." "But, Larry, they were all sold FOB your plant, so title passed to the buyer when they were shipped." "I know that, Joyce, but that was an unusual move by our overzealous sales staff, who were trying to look good and get a high commission on year-end numbers. Anyway, the customer hadn't inspected them yet. Just this once, Joyce, let's put it into next year. It's not really a significant amount for our shareholders, but it will trigger a much bigger problem for them if the unions get a hold of the higher profit numbers. As you know, about 40% of our shares were willed to the United Charities Appeal here in town, and they could sure benefit by higher profits and dividends in the future. I bet the difference in their dividends could be up to $400,000 per year over the life of the next five-year contract." Question 1. identify stakeholders who will be directly or indirectly impacted by the CFO's proposal and their interests. 2. Apply the 5 questions approach
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