Controllership in Accounting

The Revenue Recognition Process

Lynn and Mavis worked well together to organize the accounting system and records of a growing, nonprofit, Medical Center. Robert and Janice, the two top executives at the company, were focused on company growth as it related to monthly and annual revenue. Robert was charged with creating the companys annual budget.

Every month Lynn and Mavis would compile the necessary information to create the financial statements which were reviewed by the company officers and later reported in patient and employee newsletters. Oftentimes revenue would fall below Roberts original projections. At such times, Robert would rant and rave about the low patient revenue accruals and comment that surely more must be accrued. Mavis and Lynn would often remark to each other why dont we just book the budget, since that is essentially what they did every month after their initial financial figures were reviewed, at least in terms of revenue.

Although Mavis and Lynn realized that at year-end the auditors would not condone Roberts recording practices, they were still somewhat angry that their precise accounting system required monthly adjustments because of Robert and Janices need to look good to the board.

Of course, when year-end came, the glowing financial news fell short of projections. Although the shortfall was not enough to raise the medical centers rates, it did send a panic through the accounting department. This information was not reported directly to shareholders, but it was embarrassing to make the year-end adjustments while scrambling to uncover additional revenues; and explain to coworkers why monthly newsletters were incorrect.

Answer the following questions from the case above :-

1. What are the relevant facts of the case?

2. What, if any, are the ethical issues?

3. Who are the stakeholders?

4. What are the possible alternatives including any ethical concerns?

5. What are the practical constraints?

6. What action(s) should be taken?