Stamford International Inc.

April Short

2/22/16

Stamford International Inc.

1. As Stamford International’s chief executive officer, what earnings-per-share figure do you believe best reflects the company’s first-quarter operating results? (This figure will never be revealed to the public.)

The Stamford International Inc. is having trouble reaching its expected earning goals for the 1st quarter. Based on the senior management’s discussion, $0.52 per share should be the figure that best reflects the company is operating results for the current reporting period. This figure is compute upon the preliminary EPS, which is $0.47, plus deferred maintenance cost and spring relocation cost, which amounts to $0.05 in total.

2. What earnings-per-share figure would you, as Stamford International’s chief executive officer, report to investors as the company’s first-quarter operating result?

If I were the CEO, I would side with the senior management, which $0.52 per share. Stamford’s management will not reveal this figure to the public for interim reporting purpose because it is still below market’s expectation and investors will react negatively to it. Nevertheless, I would reveal it anyway to have the most accurate first quarter operating results.

3. How do you believe the various accounting and disclosure issues raised in the case should be resolved?

To create a more favorable earnings picture, top managements are seeking alternatives to manage earnings through making various adjustments within the scope of GAAP. In this case, a number of controversial accounting issues had created many opportunities for management to inflate earnings.

Under GAAP, management has discretions to choose different accounting methods and use accruals, deferrals and estimates to manipulate reported earnings. For example, TDD‘s manager has the flexibility to defer inventory write-off costs to this year as a way to inflate earnings of last year.

The division managers are self-interested. As a way to...