Vern Fairly, president of Flex Industries Inc., wants to issue a press release to boost the company's image and its share price, which has been gradually falling. As controller, you have been asked to provide a list of horizontal percentages and financial ratios for Flex Industries' first-quarter operations.
Two days after you provide the ratios and data requested, you are asked by Anne Saint Onge, Flex's vice-president of communications, to review the accuracy of the financial and operating data contained in the press release written by the president and edited by Anne. In the news release, the president highlights the sales increase of 10% over last year's first quarter and the positive change in the current ratio from 1.1:1 last year to 1.5:1 this year. He also emphasizes that production was up 15% over last year's first quarter.
You note that the release contains only positive or improved ratios and none of the negative or worsening ratios. For instance, there is no mention of the fact that although the current ratio improved, the cash current debt coverage ratio fell from 0.2% to 0.1%, or that the debt to total assets ratio has increased from 35% to 45%. Nor is there any mention that the reported profit for the quarter would have been a loss if excess machinery had not been sold at a gain.
Instructions
(a) Who are the stakeholders in this situation?
(b) Is there anything unethical in President Fairly's actions?
(c) As controller, should you remain silent? Why or why not? Does Anne have any responsibility?