A Slippery Slope Into A Tangled Web Case Solution

2. 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.