Graydon Ross CFO of Diversified Industries PLC is discussing the publication of the annual report with his managing director Phil Davison. Graydon says: ‘The law requires us to comply with accounting standards and at the same time to provide a true and fair view of the results and financial position. As half of the business consists of the crockery and brick making business which your great grandmother started, and the other half is the insurance company which your father started, I am not sure that the consolidated accounts are very meaningful. It is hard to make sense of any of the ratios as you don’t know what industry to compare them with. What say we also give them the comprehensive income statements and balance sheets of the two subsidiary companies as additional information, and then no one can complain that they didn’t get a true and fair view?’
Phil says: ‘I don’t think we should do that. The more information they have the more questions they will ask. Also they might realise we have been smoothing income by changing our level of pessimism in relation to the provisions for outstanding insurance claims. Anyway I don’t want them to interfere with my business. Can’t we just include a footnote, preferably a vague one, that stresses we are not comparable to either insurance companies or brick makers or crockery manufacturers because of the unique mix of our businesses? Don’t raise the matter with the auditors because it will put ideas into their heads. But if it does come up we may have to charge head office costs to the two subsidiaries. You need to think up some reason why most of the charges should be passed on to the crockery operations. We don’t want to show everyone how profitable that area is. I trust you will give that some thought so you will have a good answer ready.’

Required:
Discuss the professional, legal and ethical implications for Ross.