After a decade of consistent income growth, the Tomson Corp sustained a before tax loss of 8.4 mil in 2011. The loss was primarily due to 10 mil in expense related to the product recall. Tomson manufactured medical equipment. The recall was attributed to a design flaw in company's new line of machines.
The company controller suggested that the loss should be included in the 2011 income statement as an extraordinary item. "If we report it as an extraordinary item, our income from continuing operation will actually show an increase from the prior year. The stock market will appreciate the continued growth in ongoing profitability and will discount the one time loss. And our bonuses are tied to income from continuing operation, not net income". The CEO agreed since the design flaw has been fixed and upgraded the quality control procedure.

Discuss the ethical dilemma faced by the controller and CEO of the company.

Please help... thanks!

This response is unethical.
The losses arose from operations and while they might be abnormal in amount their impact on the accounts can be explained without distorting the accounting reports. A careful reading of the text indicates that executive bonuses are involved and tied to operating results so there is a conflict of interest. Executives who presided over this decacle should not be rewarded with bonuses after the company has suffered significant losses

You should be able to develop these arguments talking about fiduciary relationships