Question

Fear of Reporting under U. solveS. solve GAAP

You are on the board of directors of a large German corporation. solve You are in the years before 2008 when the SEC required all U. solveS. solve-listed companies to prepare reports using U. solveS. solve GAAP . solve For several years, the board has been discussing the possibility of listing the company’s shares on the New York Stock Exchange. solve The CEO has approached the SEC several times asking for permission to list in the United States without also being required to reconcile its reported income to U. solveS. solve GAAP . solve So far, the SEC has refused to compromise. solve As a result, the CEO has decreed that the company will not list its shares in the United States. solve

You know that the reason the CEO is so vehemently opposed to reporting net income under U. solveS. solve GAAP is that doing so would reveal the income manipulation that your company has engaged in during the past few years. solve Historically, your company has overstated expenses, thereby creating a large amount of “hidden reserves. solve” During the past two years, those hidden reserves have been reversed, increasing reported income and covering up mounting operating losses. solve

You are fearful of the company’s survivability in the long run as long as operating losses are being covered up instead of addressed head on. solve The board of directors meets tomorrow, and one of the items on the agenda is yet another proposal to list shares on the New York Stock Exchange. solve What points should you bring up during that discussion? solve