Question

Chapter 7 Jim is the owner and president of ZZZ Company. He and his close friend, Dan, graduated with MBAs. They always dreamed about being successful and making lots of money. They have worked in the same company for years, working their way up to senior management and eventually senior executive roles. ZZZ Company has been a success the entire time that Jim and Dan have worked for the company. Stock prices have increased every year, and revenues have grown by a compounded rate of 20 percent per year, Jim is becoming a little suspicious of the company's results because the earnings per share are always equal to Wall Street's projections. In the past couple of years, Jim has noticed that his friend's personal life has become troubled. Dan has gotten a divorce and is continually struggling financially, even though Jim knows that Dan is making plenty of money to cover his bills. One night, Jim stopped by the office to respond to some e-mails he could not get to during the day. He noticed that Dan was working late as well. Dan was the CEO, and Jim just assumed that he was working late because it was close to the end of the quarter. However, after reviewing the quarter's results, Jim is suspicious again because the results are exactly equal to Wall Street's forecasts. Jim decides he needs to begin an investigation into financial reporting practices. Question: What issues must Jim consider in deciding how to investigate the financial results of the company?

Answer 1

Answer-The issues Jim must consider in deciding how to investigate the financial results of the company are:-

First, There is a fair chance that the problem lies somewhere else not with the Dan, So Jim must investigate that problem without involving Dan.

As Dan is CEO his involvement is must in financials of the Company .His involvement in each quarter for the last few years needs to be checked across all verticals of the company, especially the financials. Especially the periods wherein Dan was going through the personal problems, but keeping the bills at par, needs to be carefully looked at, whether the source of income is fraud or not.

As the wall street's forecast is always tallying with the company's performance every quarter and it is also decreasing every time is something that needs to be checked at depth. Investigation must be done on each aspect of the organization. May be it will take time but the actual result will be revealed after this.

Jim must talk to his friend Dan also about his personal life and try to solve his problems. As Jim and Dan has built up organization together and Dan is questioned by Jim. as the matter is financial resources and overall financial performance by the organization.