Advertising Expense/Earnings Management Essay
Writing Assignment 1.
October, 8th 2012
The issue here is about how to treat an extensive advertising campaign cost for reporting purposes in Target Inc. The Controller (CFO), Steve Smith is holds that it should be reported as an expense for the current period, basing his argument on the conservative principle of accounting which had been in place in the company. However, the Vice President and the CEO disagree with him and insists that the expense be reported as part of manufacturing overhead cost until the goods are sold, then can it be recorded as an expense. If it is not treated expensed for the current period, then it will be capitalized and thus will appear only in the balance sheet and not in the income …show more content…
Putting me in the shoes of Steve Smith I will do what is right; try to be consistent with the rules and principles that had been used in the past. I will write a memorandum warning of the consequences of executive action in the long run. In this way I will be exonerating myself of any legal actions that will definitely follow. I will thus side-step management and be the whistleblower by informing the Board of Directors.
To: Board of Director
From: Steve Smith, Controller
CC: Vice President; CEO
Date: October, 8th 2012