Question

The tobacco comapnies have paid billions because of smoking-related illnesses. In particular, Philip Morris, a leading cigarette manufacturer, paid more than $\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{000}\mathbf{,}\mathbf{000}$in settlement payments in one year.

Requirements

1) Suppose you are the chief financial officer (CFO) responsible for the financial statements of Philips Morris. What ethical issue would you face as you consider what to report in your company's annual report about the cash payments? What is the ethical course of action for you to take in this situation?

2) What are some of the negative consequences to Philip Morris for not telling the truth ? What are some of the negative consequences to Philip Morris for telling the truth ?

Short answer

1. The ethical issue in the given case is to report the truty or hide it. There would be negative consequences in both the case but reporting the fact would be more appropriate.
2. Negative consequences of telling truth is investors feel cheated. The negative imapct of telling truth is that company lose its image iin public.

Step-by-step solution

Ethical Issue

The ethical issue in the given case is the expense incurred toward a health hazardous activity. Smoking is not good for social life and it causes several health-related issues. As the company has incurred the cost related to smoking activity, it would bring a negative image in the public domain if reported.

The ethical course of action, in this case, would be to report the cost or payment as a corporate social responsibility activity or to amortize the cost for the long term.

Negative and positive impacts

Negative consequences for not telling the truth

1. Investors may feel cheated
2. There would be a chance for making a scam of the paid money.
3. The financial statement would not represent the correct facts.

Negative consequences for not telling the truth

1. Company may lose some of its Investors.
2. The share price of the company may fall
3. The image of the comapny in the public domain may get effected.