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managing earnings to avoid political scrutiny flame control company is a publicly tr 691962

Managing Earnings to Avoid Political Scrutiny

Flame Control Company is a publicly traded company based in a heavily forested state in the western United States. Flame Control manufactures equipment used in fighting forest fires. During the past year, many large fires occurred in the forests of Flame Control’s state. Many homes were destroyed, hun Dr. eds of thousands of acres of timber were burned, and the public expenditure on fighting the fires was at least triple what it had been in any other year in history. It was a very successful year financially for Flame Control because it was able to sell every piece of equipment that it was able to manufacture in its factories. There has been some grumbling in the press about price gouging by fire equipment manufacturers. You are Flame Control Company’s chief financial officer (CFO).You are working with the accounting staff to prepare the financial statements for the preceding fiscal year. Flame Control is expected to make a preliminary earnings announcement next week. What issues and what accounting actions might you consider as you prepare for the preliminary earnings announcement?

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