The executive officers of Buffalo Bills Corporation have a performance-based compensation plan that links performance criteria to growth in earning per share.When annual earnings per share (EPS) growth is 12%, the Buffalo Bills executives earn 100% of a predetermined bonus amount.If growth is 16%, they earn 125%.If EPS growth is lower than 8%, the executives receive no additional compensation.

In 2020, Jim Germany, the controller of Buffalo Bills, reviews year-end estimates of bad debt expense and warranty expense.He calculates the EPS growth at 15%.Peter Holland, a member of the executive group, remarks over lunch one day that the estimate of bad debt expense might be decreased, increasing EPS growth to 16.1%.Germany is not sure he should did this, because he believes that the current estimate of bad debts is sound.On the other hand, he recognizes that a great deal of subjectivity is involved in the calculation.

Instructions

Discuss the financial reporting issues.Assume this is a public company. Provide the report using the following headings:

1.Overview;

2.Analysis;

3.Conclusion and recommendations.