In June 2014, the board of directors for McElroy Enterprises Inc. authorized the
ID: 2471809 • Letter: I
Question
In June 2014, the board of directors for McElroy Enterprises Inc. authorized the sale of $10,000,000 of corporate bonds. Jennifer Grayson, treasurer for McElroy Enterprises Inc., is concerned about the date when the bonds are issued. The company really needs the cash, but she is worried that if the bonds are issued before the company's year-end (December 31, 2014) the additional liability will have an adverse effect on a number of important ratios. In July, she explains to company president William McElroy that if they delay issuing the bonds until after December 31 the bonds will not affect the ratios until December 31, 2015. They will have to report the issuance as a subsequent event which requires only footnote disclosure. Grayson expects that with expected improved financial performance in 2015, ratios should be better.
Instructions
What are the ethical issues involved?
Should McElroy agree to the delay?
(a)What are the ethical issues involved?
Explanation / Answer
1) Investors and other stakeholders benefit from clear and understandable financial statement foot note disclosures when evaluating a company’s performance and prospects for future cash flows.
The FASB is developing a framework to increase the effectiveness of foot note disclosures .The framework
will address both the FASB’s process for establishing disclosure requirements and preparers ’ processes for
determin ing which disclosures to make .
The success of the Board’s project to develop the framework will ultima tely depend on the extent to which
capital market participants support the project’s objectives .
In the meantime, there are steps that preparers and other capital market participants can take today to
enhance the clarity and understandability of disclosures.
Preparers can work to ensure that foot note disclosures clearly communicate relevant policies , provide clarity about
significant transactions , give prominence to significant items, eliminate duplication, and provide meaningful ,
company - specific information .
Use of proper organization and formatting, cross-referencing,plain-English,and tabular presentations also
can enhance navigation within the financial statements
2) no, McElroy should not agree to the delay?
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