Crane Corporation was in the process of completing the financial
Crane Corporation was in the process of completing the financial statements for the latest fiscal year. Susan Randal, Crane's CEO, was reviewing the comparative financial statements and expressed some concerns. In comparing the current year's income statement against those of the prior years, she noticed that total sales had decreased slightly. Further, the salaries expense had increased while the advertising and research and development expenses had decreased. Although the total operating expenses were essentially the same, Susan was concerned that the increased salaries expense would be questioned by the investors and financial analysts in light of the decreases in advertising and research and development. She knew that the lower sales would be blamed on reduced advertising and less spending on research and development. As a result, Susan ordered the accountants to issue a condensed income statement that would present all operating expenses as a single amount. Also, during the year Crane Corporation had purchased another company for a price higher than the total fair market value of the purchased business. Crane properly recorded the excess cost as goodwill, but the total amount of goodwill had increased substantially because of this purchase. Susan was concerned that this rather large increase in goodwill would be seen as an unnecessary purchase and investors and analysts would become upset. Thus, Susan ordered that the goodwill be lumped in with the other assets rather than listed separately on the balance sheet where it could easily be seen. The accountants argued that attempting to hide these items from investors and analysts would be unethical. They further argued that GAAP required full disclosure, and that if Susan insisted on providing condensed statements, details would need to be provided in the footnotes anyway. Susan reluctantly agreed to the disclosure, knowing that often footnotes are not read.
Why would Susan want all the operating expenses lumped together? Why would Susan want the goodwill included as other assets? Were the ethical concerns raised by the accountants valid? Are any ethical issues involved in providing condensed information with the details included in the footnotes? Do you have any additional thoughts?

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