Question 1

Arguably, there is a moral obligation for companies and their management to act in a socially responsible manner. There is also financial and political pressure for a higher level of corporate social responsibility (CSR). The awareness and acceptance of CSR has increased in the country judging by the extensive coverage of such activities in annual reports, media commentaries and references in the speeches of government leaders.

a.

Based on the statement above, can a business be socially responsible and also be proftable? Justify your answer.

(10marks)

b.

Evaluate the importance of corporate social responsibility from the perspective of national development.

(15 marks)

Question 2

Biovail Corporation, a major Canadian pharmaceutical company listed on the New York Stock Exchange, announces that it will miss its quarterly earnings target by $25 million to $45 million, blaming $10 million to $15 million of the shortfall on a truck accident involving a shipment that left its facility on the last day of the quarter. The surprise here is that in spite of all the statements made by the company regarding the effect of the accident on quarterly earnings, the accident (which occurred after the quarter end) should not have affected reported revenue. The case was ultimately prosecuted by the U.S. Securities and Exchange Commission (SEC).

The case is centered on the question of revenue recognition and how the company should have accounted for the sales (FOB company or FOB destination). However, it also provides a rich setting permitting exploration of peripheral topics around the ethics of earnings management. For example, the case discusses stock analysts' reactions to the announcement; questions how much product was actually in the truck; questions how aggressively the company responds against the analysts who downgrade the stock; and highlights the role of the SEC in enforcement.

a.

Illustrate how the 5-step model of revenue recognition is used to justify SEC actions on Bioval Corporation.

(10 marks)

b.

What are the ethical issues that force SEC to prosecute Bioval Corporation?

(15marks)