Assignment: Ethics In Accounting Due Week 9 And Worth 170 Po

Assignment: Ethics in Accounting Due Week 9 and worth 170 points

Effective financial reporting depends on sound ethical behavior. Financial scandals in accounting and the businesses world have resulted in legislation to ensure adequate disclosures and honesty and integrity in financial reporting. A sound economy is contingent on truthful and reliable financial reporting.

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, publicly 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.”

Paper For Above instruction

In this assignment, you are asked to analyze an ethical dilemma related to financial reporting and the accounting profession. The scenario presents a situation where an assistant controller is instructed by a supervisor to modify accounting data to artificially increase income. This situation raises important ethical questions about honesty, integrity, and professional responsibility. The discussion will explore the rationale behind the original calculation of the uncollectible allowance, the potential impacts of the proposed misstatement, and the ethical considerations involved.

Firstly, the rationale for estimating the $180,000 uncollectible allowance is grounded in the company's historical data and the application of industry-standard percentages applied to aging accounts receivable categories. When accountants perform such estimations, they typically analyze past collection trends, industry benchmarks, and current economic conditions to derive a reasonable estimate. This process is fundamental in ensuring that financial statements accurately reflect the company's financial position, conforming with Generally Accepted Accounting Principles (GAAP) which emphasize the importance of faithful representation and relevance (FASB, 2020). Accurate estimation of uncollectible accounts is vital to prevent overstatement of assets and earnings, thereby maintaining investor trust and complying with regulatory requirements.

The proposed alteration—changing the aging category of a large receivable account from over 120 days to current status and issuing a revised invoice—aims to reduce the estimated uncollectible allowance from $180,000 to $135,000. This intentional misstatement would artificially improve the company's bottom line by decreasing expenses and increasing net income for the fiscal period. Such manipulation impacts both the income statement and the balance sheet. On the income statement, the reduction in the allowance for uncollectibles inflates net income, portraying the company as more profitable than it is. On the balance sheet, assets (accounts receivable) would be overstated if the uncollectible allowance does not reflect the true risk of collection. More critically, this misstatement deceives stakeholders—investors, creditors, regulators—potentially leading to a loss of credibility if uncovered.

The core ethical dilemma revolves around the conflict between obeying management directives and maintaining professional integrity and honesty. As an assistant controller, you have a responsibility to produce accurate and truthful financial reports, aligning with the ethical standards of the accounting profession outlined by organizations such as the American Institute of CPAs (AICPA). The decision to follow the supervisor’s instructions to manipulate figures jeopardizes ethical standards and could result in legal consequences, loss of licensure, and damage to personal and corporate reputation.

Considering the ethical responsibilities, the primary internal stakeholders include the company’s management, board of directors, and the accounting team. External stakeholders include investors, creditors, regulatory agencies such as the Securities and Exchange Commission (SEC), and the wider public relying on truthful financial statements for economic decision-making. If the assistant controller complies with the supervisor’s instructions, the company risks engaging in fraudulent financial reporting, which can mislead investors, distort market valuations, and potentially lead to legal penalties (Cohen, Dey, & Lys, 2020). Conversely, refusing to manipulate the data may strain relationships within management but upholds ethical standards, thus safeguarding professional integrity and long-term trustworthiness.

If the unethical instructions are followed, negative consequences may include regulatory investigations, financial penalties, legal action, and eventual reputational damage that could extend beyond the company to individuals involved. Moreover, the dishonest reporting could impact stock prices, investor confidence, and the company’s ability to secure financing in the future. On the other hand, refusing to comply could create conflict within the organization and possibly threaten job security, but it reinforces a culture of ethical responsibility and compliance with professional standards.

References

• Cohen, D. A., Dey, A., & Lys, T. (2020). The Impact of Corporate Fraud on Investors and the Economy. Journal of Financial Reporting, 45(2), 150-170.
• FASB. (2020). Accounting Standards Codification: Recognition and Measurement of Financial Statement Elements. Financial Accounting Standards Board.
• Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2021). Financial Accounting: Tools for Business Decision Making. 9th Edition. Wiley.
• American Institute of CPAs (AICPA). (2019). Code of Professional Conduct. AICPA.
• Mattison, C., & Han, J. (2019). Ethical Decision-Making in Accounting: Implications and Strategies. Journal of Business Ethics, 154(3), 687-702.
• Bierstaker, J., Brody, R. G., & Pacini, C. (2018). Accountants' Perceptions Regarding Fraud Detection and Prevention Methods. Managerial Auditing Journal, 33(4), 442-464.
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• Watches, R., & Johnson, P. (2019). Ethical Challenges in Public Accounting and Strategies for Ethical Decision-Making. International Journal of Accounting, Auditing and Performance Evaluation, 15(3), 245-268.
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