The controller of Diaz Co. believes that the yearly allowance for doubtful accounts for Diaz Co. should be 2% of net credit sales. The president of Diaz Co., nervous that the stockholders might expect the company to sustain its 10% growth rate, suggests that the controller increase the allowance for doubtful accounts to 4%. The president thinks that the lower net income, which reflects a 6% growth rate, will be a more sustainable rate for Diaz Co.

Instructions

(a) Who are the stakeholders in this case?

(b) Does the president’s request pose an ethical dilemma for the controller?

(c) Should the controller be concerned with Diaz Co.’s growth rate? Explain your answer.