Wellcovered Insurance Ltd sells general insurance policies. At the end of the reporting period, the business information system manager, Mark Duncan, found that the company’s accounting system had been infected by a computer virus and any general ledger account balances could not be relied upon. Mark advised the chief financial officer, Ben Nguyen, and the chief executive officer, Sarah Chan, that the profit reports would be delayed extensively while the software was disinfected.

Sarah said that she needed to issue a press release for the profit figures and didn’t want this to be delayed because stakeholders would think something was wrong with the company. She explained to Ben that it was not in the shareholders’ best interests to delay profit figures and asked him to estimate them so that the press release would not be late. Ben argued that he did not have documentation or other sources of information on which to base the estimates because they depended on the computer to determine how many insurance contracts had been sold. Sarah countered that this should not be a problem because accounting uses a lot of estimates and judgements. She added that this was what was meant by timeliness, which Sarah recalled was mentioned in an accounting textbook she had read a long time ago.

Required

(a) Who are the stakeholders in this situation?

(b) Is Sarah correct about the estimation of revenue, expenses and profit for the period being consistent with the timeliness constraint?

(c) Would the actions requested by Sarah be consistent with accounting principles?

(d) Would reporting the estimated figures be ethical?

(e) What do you think would be the consequences of a significant error in the estimation that overestimated profit?