Question: The following is an excerpt from a conversation between the chief executive officer, Harry Balmer, and the chief financial officer, Connie Kenner, of BKX Group

The following is an excerpt from a conversation between the chief executive officer, Harry Balmer, and the chief financial officer, Connie Kenner, of BKX
Group Inc.:
Harry (CEO): Connie, as you know, the auditors are coming in to audit our yearend financial statements pretty soon. Do you see any problems on the horizon?
Connie (CFO): Well, you know about our “famous” Robert Company acquisition of a couple of years ago. We booked $5,000,000 of goodwill from that acquisition, and the accounting rules require us to recognize any impairment of goodwill.
Harry (CEO): Uh-oh.
Connie (CFO): Yeah right. We had to shut the old Robert Company operations down this year because those products were no longer selling. Thus, our auditor is going to insist that we write off the $5,000,000 of goodwill to reflect the impaired value.
Harry (CEO): 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 $3,000,000. Connie, keep the write-off to $3,000,000 and promise anything in the future. Then we’ll deal with that when we get there.
How should Connie respond to the CEO?

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