The following is an excerpt from a conversation between the chief executive officer, Kim Jenkins, and the chief financial officer, Steve Mueller, of Quatro Group Inc.:

Kim: Steve, as you know, the auditors are coming in to audit our year-end financial statements pretty soon. Do you see any problems on the horizon?

Steve: Well, you know about our “famous” Scher Company acquisition from a couple of years ago. We booked $9,000,000 of goodwill from that acquisition, and the accounting rules require us to recognize any impairment of goodwill.

Kim: Uh-oh.

Steve: Yeah, right. We had to shut the old Scher Company operations down this year because those products were no longer selling. Thus, our auditor is going to insist that we write off the $9,000,000 of goodwill to reflect the impaired value.

Kim: We can’t have that—at least not this year! Do everything you can to push back on this one. We just can’t take that kind of a hit this year. The most we could stand is $5,000,000. Steve, keep the write-off to $5,000,000 and promise anything in the future. Then we’ll deal with that down the road.

How should Steve respond to Kim?

Answer rating: 100% (QA)

Steves response It wouldnt work either because that will tantamount to fraud Before ... View the full answer