Question

Chris Titera is the CFO for Dallas Company. It is January 10, and Chris has just finished compiling the preliminary financial results for the most recent fiscal year, which ended on December 31. The preliminary results indicate that Dallas lost $100,000 during the year. Dallas is a large company (with assets in excess of $1 billion), so the $100,000 loss is essentially the same as zero. However, the board of directors thinks that it conveys a very negative image for Dallas Company to report a loss for the year, even if the loss amount is very small. As a result, it has instructed Chris to look at the numbers again and see if he can turn this loss into a profit. What things can Chris do, as the CFO, to turn this loss into a profit? What concerns should Chris have?

Answer 1

Revision of Accounting estimates that will lower the expenses and increases the Net Income. Chris can do this and reduce expenses to extent of $100,000 resulting nullification of loss. Following are accounting estimates: 1. Bad debt expense 2. Depreciation life estimates 3. Estimates of Warranty Expenses 4. Estimates of Environmental cleanup expenses etc. Concerns: For Company: Reputation for having low quality financial statements For Chris: Reputation as a Flexible Accountant.