The management of the Auto Parts Division of the Santana Corporation receives a bonus if the divisions income achieves a specific target. For 2016 the target will be achieved by a wide margin. Mary Beth Williams, the controller of the division, has been asked by Philip Stanton, the head of the divisions management team, to try to reduce this years income and bank some of the profits for future years. Mary Beth suggests that the divisions bad debt expense as a percentage of net credit sales for 2016 be increased from 3% to 5%. She believes that 3% is the more accurate estimate but knows that both the corporations internal auditors as well as the external auditors allow some flexibility when estimates are involved. Does Mary Beths proposal present an ethical dilemma?

Ethical Dilemma

Please read the Ethical Dilemma on page 374 of your textbook.This dilemma is designed to raise your awareness of accounting issues with ethical ramifications.Use the analytical steps outlined below to evaluate this situation.

Analytical Model for Ethical Decisions

Step 1.Determine the facts of the situation. This involves determining the who, what, where, when, and how.

Step 2.Identify the ethical issue and the stakeholders. Stakeholders may include shareholders, creditors, management, employees, and the community.

Step. 3Identify the values related to the situation. For example, in some situations confidentiality may be an important value that may conflict with the right to know.

Step 4.Specify the alternative courses of action.

Step 5.Evaluate the courses of action specified in step 4 in terms of their consistency with the values identified in step 3. This step may or may not lead to a suggested course of action.

Step 6.Identify the consequences of each possible course of action. If step 5 does not provide a course of action, assess the consequences of each possible course of action for all of the stakeholders involved.

Step 7.Make your decision and take any indicated action.