José Rodríguez, Vice President of Finance, and Victoria Figueroa, comptroller of the comapny Cafe Rico Company, are reviewing the company’s financial ratios for 2014 and 2015. The VP of Finance notes that the profit margin in relation to sales margin increased from 6% to 12%, a significant gain over the 2-year period. Rodríguez is in the process of issuing a press release that emphasizes the efficiency of Café Rico in controlling costs. Victoria Figueroa knows that the difference in ratios is mainly due to a decision by the company to reduce the estimetes of the guarantee and bad debt expenses from 2015. Victoria Figueroa (controller) is not sure of the motives of the Finance supervisor; hesitates to propose to Rodríguez that the improvement of the company is not related to the efficiency in the control of costs. For reason of compliance, a press release is scheduled to be issued in a few days.
b. In the case of Victoria Figueroa (controller), who remains silent, give the reasons why or why she should not reamain silent in this situation indicate if this behavior is correct, if it is justified. with detail
In the given situation, José Rodríguez and Victoria Figueroa, both are considered to be a key managerial person, who govern the important decisions of the Cafe Rico Company. It makes them accountable to shareholders of Cafe Rico Company for each and every decision made by them with regards to company.
As per Government compliances like SOX audit, states that how key managerial person plays role in establishing good corporate governance and if any failure from such persons attracts penalties and prosecutions on such person.
It’s stated that Victoria Figueroa, who is controller of company knows about the actual fact of increase in profit margin ratio due to internal managerial decision and say just book adjustments only, and not because of efficiency of Café Rico in controlling costs.
Because of Victoria Figueroa’s silence, it will portrait wrong picture about company’s policies and decisions and their impacts on company’s performance, among the shareholders. It may result into the defraud to them.
Hence, the behaviour of Victoria Figueroa is not correct, and she should not remain silent on this issue and communicate facts to the Rodríguez. It will protect both of them from future inconvenience.