Ethics in Accounting
Instructions:
Read the following scenario.
Answer the questions that follow. This will be a 2-3 page submission in a question and answer format (also in paragraph form). An introduction and conclusion is not required.
Refer back to your textbook for guidance on how to think through the scenario.
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.”
Required:
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?
Additional Requirements:
Use at least one (1) quality academic resource (in addition to your textbook) for this assignment. Note: Wikipedia and similar websites do not qualify as academic resources. You have access to Strayer University’s Online Library at https://research(dot)strayer(dot)edu and the iCampus University Library Research page at https://icampus(dot)strayer(dot)edu/library/research.
Your assignment must follow these formatting requirements:
Your paper should be double spaced (Arial or Times Roman 12 pt font) and follow general Strayer Writing Standards (SWS) as they relate to references and citations. Please take a moment to review the SWS documentation for details (more information and an example is included in the Strayer Writing Standards menu link located in your Blackboard).
Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
Ethics in Accounting
Week 9 Assignment
Professor Carla Henryhand
ACC100
Kym Ivory
Rationale for $180,000 uncollectible allowance
An uncollectible account is part of the account receivable that will never be collected and the accounts receivable is recorded net of the estimated uncollectible amount. Financial reports are prepared in accordance with accounting and financial reporting standards where care is exercised to avoid misstatements (De Jesus et al., 2020). The allowance method for uncollectible accounts is necessary to estimate the amount of uncollectible accounts receivable associated with each accounting period. When there are credit sales some customers will fail to pay and there is debit record for the provision of bad debts or uncollectible accounts and credit of the allowance for uncollectible accounts, which reduces the accounts receivable (debtors).
Misstatement of funds and financial statements
Without making changes the allowance for uncollectible accounts is $200,000 ($20,000+ $180,000). When there is a change for the allowance for uncollectible accounts will reduce from $180,000 to $135,000 a difference of $ 45,000. Allowance for uncollectible reduces the total accounts receivable (Weil, Schipper & Francis, 2014). This means that the accounts receivable will be more than $ 45,000. In the balance sheet, accounts receivable balance will be overstated by $ 45,000. The bad debts are recorded in the income statement as expenses and this means that the total expenses will be understated by $ 45,000 and the profit overstated by $45,000.
Ethical dilemma and considerations
There is an ethical dilemma on whether to make changes in the uncollectible accounts as requested by the controller who wants the amount reflected to be $135,000 instead of $180,000. Yet for the assistant controller, there is a need to exercise honesty and integrity including ensuring that the accounts, records and financial statements a true and fair reflection of the business transactions. Thus, there should be accurate preparation, presentation and disclosure of financial information. Additio...