You are the Financial Controller in a manufacturing business, Sundance & Cassidy Ltd, which like many businesses in the UK is beginning to feel the impact of the credit crunch.

The business is a large private company with 270 employees and has a turnover of £50 million. You prepare the quarterly management accounts and provide these to Robert, the Financial Director (FD), for his comments.

A few months ago you had noted that the balance sheet position was slightly below that required by the covenant over the company's long-term bank loan and you made Robert aware of this. He thanked you for your vigilance and for raising the issue but told you not to worry.  

A few days later, a set of quarterly management accounts was sent to the bank. Robert provided you with a set of accounts for the file. You noted that the stock figure on the balance sheet had been increased by £1,850,000. Without this adjustment the banking covenant would have been breached that particular quarter.

Whilst you trust Robert and have a good working relationship with him, you found the stock adjustment surprising as you had made all the usual checks to ensure that the cut-off and valuation procedures were properly adhered to. Such an adjustment had never been made in previous quarters. You thought about questioning Robert on this issue but as you have a great deal of respect for him and he is a very busy man, you decided not to say anything.  

At the end of the next quarter, the same thing happened again, although the adjustment on this occasion had risen to£2,770,000. This time you asked Robert why the stock adjustment was necessary. He advised you that, at the quarter-end the company held stock at external premises, which was not included in the stock count.

You found this strange as Robert has never mentioned this to you before and it would have been helpful if he had informed you of any stock held externally before you finalised the quarterly stock figures for the management accounts. However, you decided not to pursue this matter any further.  

At the end of the next quarter, things are even worse and you once again highlight to Robert that the company is failing to comply with the terms of the bank covenant. Robert tells you not to worry and a few days later you note that the set of accounts sent to the bank has again been altered to include a higher stock figure: this time an additional £5,500,000 has been added to the figure that you supplied which ensures that the company meets its banking covenant. You ask Robert to properly explain the stock adjustments which have been made in recent months but he tells you to:  

"Mind your own business and get on with your own job."  

He also informs you that if you ever question his judgment again then:  

"You won't have a job to go to!"  

What do you do now?  

Answer rating: 100% (QA)

It clearly appears that the Financial Director is indulging in and encour... View the full answer