Financial Statement Analysis A3-45 Ethics of financial statement analvsis Learning Objectives 1, 2, 3, & 4) ETHICS Fitness Mania is a small technology start-up company that specializes in personal fitness mobile apps. The three founders have been working hard they founded Fitness Mania on the company for the past two years since The owners of Fitness Mania want to expand its business lines to include personal fitness trackers. To get into the manufacture and sale of personal fitness trackers, Fitness Mania will need to raise approximately $5 million from additional investors. Fitness Mania\'s CEO is making a presentation to a group of potential investors who are interested in funding the new fitness tracker project. This presentation could make or break Fitness Mania, so it is a high-stakes presentation. The CEO knows that, while several of Fitness Mania\'s ratios are strong, it is still struggling a bit financially. Some of Fitness Mania\'s ratios would raise red flags to potential investors. The controller of Fitness Mania is Tom Black. Tom likes working for the start-up company and he strongly believes in Fitness Mania\'s mission, which is to improve fitness while making it fun. Fitness Mania\'s products are potentially life changing for the people who use them to get more fit. Fitness Mania\'s CEO asks Tom to prepare a report for the investors that emphasizes the strong ratios while burying the weaker ratios deep in the report. Tom prepares a report that emphasizes the strong ratios. The weaker ratios are buried deep within the report. Tom has included a lot of extra data in the report to help to cam- ouflage those weaker ratios. Tom also went one step further in the report preparation: He changed a few of the weaker ratios to make them appear stronger Tom rationalizes his actions by thinking that the revised report contributes to a greater good. The customers who use their fitness software products are likely to become healthier and have longer lives. He thinks that a few adjustments to the report are relatively minor when compared to the benefits that would be reaped by Fitness Mania\'s new product offerings if the potential investors do decide to invest in Fitness Mania. Requirements Using the IMA Statement of Ethical Professional Practice (Exhibit 4-6) as an ethical framework, answer the following questions a. What is (are) the ethical issue(s) in this situation? b. What are Tom\'s responsibilities as a management accountant?
a. Whle showing the performance of the company to investors, Fitness Mania is obligated to show a true and fair account of its financial health. As such only showing strong ratios and avoiding showing some of the weaker ones does not paint a true picture of the health of the company. Investors would not be able to understand how the company is performing without seeing all the possible ratio calculations, irrespective of strong or weak ratios. Hence the ethical issue stems from depicting a fair representation of the performance of the company versus being true to the CEO.
b. As a management accountant, Tom should present a fair and true picture of the performance of the company. Especially since these ratios are being presented to the nvestors, it s important to be extra carefuk while depcting the right figures.
Homework Sourse
