Ethics in Accounting: Effective Financial Reporting

Essay Instructions:

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.
Instructions:
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, publically 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.”
In a 2-3 page paper, discuss the following:
Consider what you have learned relative to ethics and financial reporting. What is the rationale for the calculations/process used to estimate the $180,000 uncollectible allowance?
How do you think the misstatement of funds will impact the income statement and balance sheet?
What is the ethical dilemma you face? What are the ethical considerations? Consider your options and responsibilities as assistant controller.
Identify the key internal and external stakeholders. What are the negative impacts that can happen if you do not follow the instructions of your supervisor?
What are the potential consequences if you do comply with your supervisor’s instructions? Who will be negatively impacted?
Your paper should be double spaced (Arial or Times Roman 12 pt font) and follow general Strayer Writing Standards (SWS) as they relate to references and citations. Please take a moment to review the SWS documentation for details (more information and an example is included in the Strayer Writing Standards menu link located in your Blackboard).
Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

Essay Sample Content Preview:

Ethics in Accounting
Student’s Name
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Ethics in Accounting
Accounting ethics is an important field in accounting. Accountants often have an obligation to comply with the General Accepted Accounting Principles (GAAPS) to perform ethically and prepare reliable financial statements and reports. Failure to adhere to these principles is considered a breach of accounting ethics. The scenario provided leaves one in a dilemma of whether to comply with the accounting principles or breach them to reduce tax and increase profit.
Relational for Calculations
The older account receivables are unpaid customer invoices used to determine statements that are past due. An allowance for doubtful accounts is a contra asset that reduces the accounts receivable on the balance sheet to reflect the expected amount to be paid. If the current balance in the allowance account is $ 20,000 before making any adjustments on the journal entries, editing the category of large accounts from over 120 days to the present time will change the allowance for the past due accounts from $180,000 to $135,000. This will make it appear as if the company’s profit has declined.
Impact of Misstatement of Funds on Balance Sheet
The changes made will reduce the income tremendously. Changing the uncontrollable accounts from $180,000 balance to $135,000, lowers their income balance by $ 45,000. Reducing uncontrollable expenses makes it appear as if the company's income has diminished. One reason for making the changes would be to minimize taxes. As such, the changes made would reduce taxes the company needs to pay. For instance, if the income balance has 30% tax before the change, taxes would increase to $ 54,000. However, if the company lowers income taxes to $ 135,000, then taxes would reduce to $40,000 at the same rate. This shows that the firm would pay less taxes by reducing income. The difference between the two incomes at a 30% tax rate is $ 13,500.
Ethical Dilemma
In this case, the ethical dilemma is whether to follow the controller’s recommendations and help him make incorrect statements to pay taxes or refuse to commit fraud and report him to the relevant authorities. By following the controller’s direction, I would be creating a fraudulent financial document. It is because legal documentation is needed for the change. The controller ought not to have recommended an unethical change of the documents, and following those recommendations would make me break the law willingly. Following the controller’s directions would force me to falsify legal documents, which is an illegal and unethical practice.
It is my job to determine if the controller’s r...

Updated on January 26, 2024

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Ethics in Accounting: Effective Financial Reporting

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