Ethics in Accounting

 

 

You have been recently hired as an assistant controller for XYZ Industries, a large, publically held manufacturing company. Your immediate supervisor is the controller who also reports directly to the VP of Finance. The controller has assigned you the task of preparing the year-end adjusting entries. In the receivables area, you have prepared an aging accounts receivable and have applied historical percentages to the balances of each of the age categories. The analysis indicates that an appropriate estimated balance for the allowance for uncollectible accounts is $180,000. The existing balance in the allowance account prior to any adjusting entry is a $20,000 credit balance.

After showing your analysis to the controller, he tells you to change the aging category of a large account from over 120 days to current status and to prepare a new invoice to the customer with a revised date that agrees with the new category. This will change the required allowance for uncollectible accounts from $180,000 to $135,000. Tactfully, you ask the controller for an explanation for the change and he tells you “We need the extra income, the bottom line is too low.”

 

In a 2-3 page paper, discuss the following:

Consider what you have learned relative to ethics and financial reporting. What is the rationale for the calculations/process used to estimate the $180,000 uncollectible allowance?
How do you think the misstatement of funds will impact the income statement and balance sheet?
What is the ethical dilemma you face? What are the ethical considerations? Consider your options and responsibilities as assistant controller.
Identify the key internal and external stakeholders. What are the negative impacts that can happen if you do not follow the instructions of your supervisor?
What are the potential consequences if you do comply with your supervisor’s instructions? Who will be negatively impacted?

Sample Solution

As students near the end of high school, the pressure to get into college becomes more apparent everyday. Every class, every grade, every statistic is accounted for. But does it matter what level of college you take after? To some people, it does. Universities are often seen as more prestigious, especially compared to community college, however the less noticed facts show otherwise.
Conventional wisdom tells us that university students are smarter than someone who attends a community college. Community college has a reputation for being less academically serious than a four year university. Teachers are commonly not as qualified as a professor from a four year college because the qualifications to teach at community college is different than a university (Community College vs. Universities). They are often not as dedicated to furthering students knowledge past the curriculum because of the students enrolled in the classes. It is frequent that students are not looking to transfer after they finish their classes and do not take their school work seriously, invoking teachers to only put in as much work as their students do (Scholarships).
Getting into a university is a big deal for many high school students and even their families. Why is it not the same when students get into a community college? There is numerous reasons why they are considered so different such as difficulty, the student life, and the teachers. There are endless stories of college students having a blast at a university, but there are rarely stories of a student at a community college having the best years of their life. For some, this experience is a need and a desire and cannot be reached at a community college. Even though the university experience seems like the best time of your life, having a smaller environment can also be helpful. With a small environment comes a small class size giving you the opportunity to have more one on one time with a teacher, rather than being in a huge class and your professor barely knowing who you are (Riskey).
It is much easier to get into a community college than a university. They have different, less strict administrative requirements, giving the impression that only people who can’t get into a university go there. However, that is not always true. Tuition plays a major role on where high school graduates can further their education. Universities tuition grows 19x faster than the median family income

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