CASE STUDY Mean Screens USA, Inc. Donna Stoneman was the CFO of Mean Screens USA, uncomfortable presenting numbers that she did not Inc. Headquartered in Seattle, Mean Screens USA was think were realistic, and she was concerned that there the sales and distribution division of Mean Screens, would be a backlash from investors if Mean Screens Ltd., a privately owned Chinese company founded in USA failed to meet the projections. She expressed her 2007 that produced inexpensive LCD screens manufacconcerns to Thomas who agreed to lower the project tured in China for sale in the US market. By 2009, rapid tions slightly, but he still kept them well above what growth necessitated a significant infusion of capital. A Donna believed was realistic. decision was made to spin off a portion of Mean Screens Donna decided to accept Thomas's revised numbers. USA in an IPO. She felt she had done all she could, as she explained: Since the beginning of the company, Donna had worked together closely with Thomas Yee, Mean The earnings projections were not officially under Screens USA's division president, to build the division. my jurisdiction. I really had no authority to change She continued to play an instrumental role in the com- them. And by definition forecasts are not black and pany's subsidiary initial public offering (IPO) process, white. It was possible that Thomas's numbers were travelling around the world to describe the investment on target. opportunity to potential investors. A successful IPO was launched in May 2009, and However, Donna was troubled by the earnings pro- Mean Screens USA, Inc. was listed on NASDAQ. Mean jections that Thomas had instructed her to present. She Screens, Ltd. retained 51% of the public shares of the felt the forecast was extremely aggressive. She was subsidiary. In the first fiscal year, however, as Donnahad feared, Mean Screens USA missed its prot projec- tions by more than 30%. Thomas was alarmed by the shortfall. He asked Donna what they could do to increase earnings so that the company's nancial statements would mirror the forecasts, and in this way pacify the new investors. His rst idea was to deem some receivables as obviously collectable to avoid setting up reserves. Donna thought that the idea was ridiculous. She told Thomas that she could not falsify nancial statements for any reason. Thomas insisted that there was no falsication. The setting up of reserves was a gray area of accounting that depended on judgment. Donna explained that the company was now public, and the audits would be more thorough. The auditors would surely insist on the establishment of reserves for uncollectible receivables. Thomas was persuaded that perhaps this plan was impractical, so he suggested another possibility. He suggested that they postpone the writing off of inventory that had likely become obsolete. Again, Donna rebuffed his request. Thomas was becoming increasingly angry at Don- na's refusal to work with him. He threatened her bonus and even told her that the long-term viability of the company was at stake. Donna was sickened. She began to wonder if Thomas was naive or just unethical. She was unwilling to sacrice her own principles and integ- rity, not to mention her CPA license, but she began to fear that her job was on the line. The reserves is sues had still not been resolved when Thomas came to Donna with a third request that he hoped would appease his most important investors. He wanted to ask the parent company for favorable trans- fer prices for a year or so in order to shift some earn- ings from the parent company to the subsidiary. He would agree to reverse the favorability of the transfer prices when Mean Screens USA could afford higher prices. Donna did not even know howto respond. Was Thomas this ignorant about nancial reporting requirements, or was he just basically dishonest? If the latter, she had to con- sider whether or not she wanted to work for someone who was capable of such dishonesty. But she was also worried about her bonus and, ultimately, her job. She had a family to support, and with the country in a severe recession, it would probably not be easy to nd another job