Ethics in Accounting
The Rationale for the Calculations used to estimate the $180,000 Uncollectible Allowance
Each age accounts receivables category used a different percentage (percentage-of-receivables method). By using a different percentage rate for each accounts receivable, an aging schedule is prepared. The aging schedule categorises the accounts receivables in accordance with how long they have been outstanding (Lumen). The schedule also uses a different uncollectibility rate for each aging category (Lumen). The percentages are based on the company’s financial experience. The $180,000 uncollectible balance, which is an equivalent of bad debt, is arrived at by multiplying by the percentage rate of the company’s uncollectible experience with the accounts receivable.
Impact of the Misstatement of Funds on the Income Statement and Balance Sheet
Misstatement of funds results in a false representation of XYZ Industries’ financial position. A balance sheet reveals the health of the in terms of assets and liabilities, while an income statement displays the operations of the company through comparison between profits and losses. A false financial position may misinform investors who may have interest in the company and rely on the right accounting numbers. As a result of the , several factors will be affected. For instance, liquidity, solvency, assets utilization, and profitability (Attah and Jindal, 1). The controller mentioned that the company needs more income. Hence the misstatement of funds would be a medium through which XYZ Industries deceives investors into investing in the company so that they get rid of bad debt.
Ethical Dilemma
As an assistant controller, my main job is to provide stakeholders, investors, and lenders with an accurate view of the company’s financial position. To be effective, an assistant controller should maintain high ethical standards, personally and professionally (Sharpe). An unethical controller may change the public’s confidence in the company and deviate business elsewhere. In this case, I face the dilemma of either changing the allowance for uncollectible accounts from $180,000 to $135,000 or report directly to the Vice President of Finance concerning the state of the company accounts. An assistant controller should possess professional competence, integrity, due care, and in this case, objectivity. I should be firm with my decision to maintain the accounts, even if I risk losing my job; as opposed to presenting false financial books.
Internal and External Stakeholders
The internal stakeholders of XYZ Industries are the board of directors, managers, and other members of staff. The external stakeholders, on the other hand, are the investors, consumers, and suppliers. If I choose to ignore the controller’s instructions and maintain the analysis as it was initially, the result will have positive and negative outcomes for the stakeholders. The internal stakeholders may suffer because the company does not have money to sustain it and the bad debt will rise with every passing month. The external stakeholders will be protected from investing and conducting business with the company, knowing the financial position of XYZ Industries.
Potential Consequences
If it is the company’s nature to change and present false books of accounts, there is a possibility that I may lose my job. If I choose to maintain my integrity as a competent assistant controller and report the correct state of accounts, I will get fired. However, if I choose to follow the controller’s instructions, the external stakeholders will be negatively impacted. They will invest in the company based on the changed required allowance for uncollectible accounts from $180,000 to $135,000. Since it is impossible for auditors to detect changes in the books of accounts in this regard, the investors may lose money due to investing in a company that is deep in debt. Suppliers and consumers will also have the same negative outcome.
Works Cited
Attah, McAnthony and Jindal, Priya. ‘’ Impact of Misstatement in Financial Statements on Investment Decision Making.’’ International Journal of Scientific and Research Publications, Volume 7, Issue 5, May 2017.
Lumen. ‘’Estimating bad debts.’’ Lumen, Lumen. courses.lumenlearning.com/vccs-acc211- 17sp/chapter/estimating-bad-debts/
Sharpe, Robert. ‘’Ethical duties of a controller.’’ Chron, Chron. work.chron.com/ethical- duties-controller-20630.html