Question

Discuss the impact of this event on Wells Fargo’s financial statements. Specifically, discuss how the alleged inappropriate sales practices would have been reflected in Wells Fargo’s financial statements in the 2011 through 2014 time period. Also, discuss how the $185 million fines might be reflected in Wells Fargo’s 2016 financial statements.

Answer 1

(A) Inappropriate sales:

• it has clearly been provided that the sales practices are only alleged to be inappropriate
• therefore, the said sales would have normally been accounted for, in the similar fashion to its other sales
• Further, as the allegations are said to be continuing through the years 2011 to 2014, the company may choose to include a disclosure note in the financial statements as follows
  "The total sales for the fiscal year is $$$$ which include amount @@@ which are disputed. The company would like to clarify that the sales practices followed are in no way inappropriate and the these are only allegations which have not yet been proved in any Court of law."

(B) Fines:

Fines have to be disclosed as a separate line item in the Statement of Profit and Loss. Further, owing to the fact that the fine amount is materially substantive, the company will have to provide an explanatory statement in the disclosure notes specifically stating:

• The reason for which the fine has been levied on the company
• The Govt. Agency which has levied the fine
• Whether the fine has already been paid in full, and/ or the balance amount due
• The corrective actions taken up by the company to ensure that such a fine is not levied again in the future.