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Discuss the financial reporting issues

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Question - The executive officers of Buffalo Bills Corporation have a performance-based compensation plan that links performance criteria to growth in earning per share. When annual earnings per share (EPS) growth is 12%, the Buffalo Bills executives earn 100% of a predetermined bonus amount. If growth is 16%, they earn 125%. If EPS growth is lower than 8%, the executives receive no additional compensation.

In 2020, Jim Germany, the controller of Buffalo Bills, reviews year-end estimates of bad debt expense and warranty expense. He calculates the EPS growth at 15%. Peter Holland, a member of the executive group, remarks over lunch one day that the estimate of bad debt expense might be decreased, increasing EPS growth to 16.1%. Germany is not sure he should did this, because he believes that the current estimate of bad debts is sound. On the other hand, he recognizes that a great deal of subjectivity is involved in the calculation.

Instructions - Discuss the financial reporting issues. Assume this is a public company. Provide the report using the following headings:

1. Overview;

2. Analysis;

3. Conclusion and recommendations.

Reference no: EM132726859

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