Ethics Case

CT14.8 Ren Kelly, president of RL Industries, wishes to issue a press release to bolster her companys image and maybe even its stock price, which has been gradually falling. As controller, you have been asked to provide a list of 20 financial ratios and other operating statistics for RL Industries first-quarter financials and operations.

Two days after you provide the data requested, Erin Lourdes, the public relations director of RL, asks you to prove the accuracy of the financial and operating data contained in the press release written by the president and edited by Erin. In the news release, the president highlights the sales increase of 25% over last years first quarter and the positive change in the current ratio from 1.5:1 last year to 3:1 this year. She also emphasizes that production was up 50% over the prior years first quarter.

You note that the release contains only positive or improved ratios and none of the negative or deteriorated ratios. For instance, no mention is made that the debt to assets ratio has increased from 35% to 55%, that inventories are up 89%, and that although the current ratio improved, the accounts receivable turnover fell from 12 to 9. Nor is there any mention that the reported profit for the quarter would have been a loss had not the estimated lives of RL plant and machinery been increased by 30%. Erin emphasized, The Pres wants this release by early this afternoon.

Read Ethics Case CT14.8 and address the following:

1. What is the ethical dilemma in this scenario?
2. If you were the controller at RL Industries, what would be your reaction after reading the press release?
3. How would you respond to Erins request to edit the press release?