Ethics Case 1: Uncollectible accounts

You have recently been hired as the assistant controller for Stanton Industries, a large, publicly held manufacturing company. Your immediate superior is the controller who, in turn, is responsible to the vice president 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 of accounts receivable and have applied historical percentages to the balances of each of the age categories. The analysis indicates that an appropriate 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 the current status and to prepare a new invoice to the customer with a revised date that agrees with the new aging 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.

Your Discussion of ethical case #1 should at least include the following questions:

1. What is the effect on income before taxes of the change requested by the controller?

2. What is the ethical dilemma you face? How many possible actions for you to choose? Please explain.

3. What are possible Positive consequences and Negative consequences if you choose to Comply with the controller's suggestion to report the allowance for uncollectible accounts at $135,000?

4. What are possible Positive consequences and Negative consequences if you REFUSE to Comply with the controller's suggestion to report the allowance for uncollectible accounts at $135,000?

5. What are possible consequences if you report the controllers suggestion to a higher level of management, the audit committee, or the auditors?