Scenario 2: Conflict of Interest

Scenario 2

You are the finance manager of a relatively new US based IT company with global presence that has developed a service which had quickly grown in demand and is a well known favourite of the analyst community. The executive team includes two of the founders and they hold significant shares and options in the company. Its sales and earnings growth has been dramatic and it recently received an acquisition approach from a major global corporation. During the period of negotiations, and due to downturn in US and European markets, together with direct competition from a new Indian company, revenues are in fast decline. This is likely to impact the acquisition value and also the return to the founders. The CEO and CFO are pressing you and the team to develop more optimistic revenue forecasts, not supported by current performance, and unrealistic in the wider economic climate in key markets. They feel this can be illustrated by adapting assumptions on which forecasts can be based and by not fully disclosing current performance losses in this quarter. You have been promised a number of shares. It is hoped that the acquisition can go through quickly before the inconsistencies between the financial forecasts and the relatively poorer future actual performance becomes evident. You have to complete the numbers for a meeting the following week. What do you do?


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