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A Slippery Slope Into A Tangled Web Case Solution

Solution Id Length Case Author Case Publisher
1277 535 Words (2 Pages) Jeffrey L. Hillard, Ali Sedaghat Harvard Business School
This solution includes: A Word File A Word File

Global Power Equipment (GPE) is an international European company that manufactures machinery to generate electricity. This company provides all the equipment and services which would be required to build a new power plant. Bo Smith who was a competent employee of the company has been relocated to a new position of US plant management. While settling and learning about his new job, Bob was faced with a scenario which was quite critical for the whole company. Bob has to make financial statements for which he has to confirm the intra-company accounts receivables from Fang Chang (Manager of Parts/Service-Asia 1) for the billing he made on the day before the year end. After many emails and faxes, Bob realized that and he and Fang Chang are not on the same board.

Following questions are answered in this case study solution

  1. Overview

  2. Key Issues

Case Analysis for A Slippery Slope Into A Tangled Web

Key Issues

The year-end approached and Bob has to close the books without the confirmation of intra-company accounts receivables. On the assurance of Joe Deboss, Bob cleared the accounts receivables (Credited) account and debited “Other assets account. The amount of the other asset was pretty big for the US Plant Management system as it offset the net operating loss by reaching the budgeted operating profit. But in March when bob reached Fang Chang through a phone, Fang denied all the billing and Bob has to reverse the other asset’s account. Due to this reversion, the operating profit for the current year was lagged behind the budget and Bob feel embarrassed for it but he didn’t disclose it to Mike Seafood.

On investigation, Bob found that the new expense in the plant management was the bonus payment for the Joe Deboss for meeting the budgeted profit in the prior year. The main issue of concern was the behavior of the vice president of the US Management plant; Joe Deboss who has shown self-centered behavior. The management plant was going to have a loss in the current year and the main reason for the loss was the reversal of the other asset account, which was created at the assurance of Joe Deboss. The way the revenue was recognized by the management plant was also critical to the operating profit. As the revenue which didn’t have any written contracts was recognized as the asset (Billings from Asia-2). Furthermore, the executives at the management plant were also not committed and hence they preferred profits in the short-run over the long run losses.

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