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?
In financial accounts, much of the accounting is quite standardized through any estimation method that is considered logical. Over a long period now, two approaches have predominated accounting whenever predicting the number of uncollectible accounts. This can be done as for XYZ industries as long as the officials have satisfying evidence to defend the reported numbers. To this effect, the rationale behind the estimated $180,000 in XYZ for uncollectible allowance could have been estimated through any of the following methods:
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Percentage of sales method, which computes doubtful accounts expense through the anticipation of the sales percentages or credit sales that are not collected. The only number estimated (bad debt expense) in this method only appears on the income statement. Secondly is the percentage of receivables method where proper balance for the allowance for the accounts held in doubt is determined based on the percentage of ending year accounts receivable that are presumed uncollectible. Doubtful figures for this method are found in the balance sheet. The aging method is also used to categorize receivables by age and then multiplies each of the totals through a certain percentage.
How do you think the misstatement of funds will impact the income statement and balance sheet?
The dynamic relationship between the cost of goods sold as well as the inventory has a direct impact on the financial statements of XYZ industries. Errors caused in the valuation of inventory, that is the balance sheet produces an equivalence correspondence in the company cost of goods sold for a given period on the income statement. Overstating cost on sales leads to an automatic understatement of net income and inventory as well. Whenever the cost of sales is understated, the net income and inventory suffer overs statement. Finally, errors in the ending year inventory for XYZ shall be transferred into the next financial period and thus impacting both the income statement and balance sheet to be presumably wrong in the succeeding year as well as time the error occurred. However, for the second ending year, the misstatements of the ending inventory balance out.
What is the ethical dilemma you face? What are the ethical considerations? Consider your options and responsibilities as assistant controller
The ethical dilemmas that accountants sometimes face include conflicts of interest, payroll confidentiality, illegal or fraudulent activities, pressure from management to inflate earnings, and clients who request manipulation of financial statements. In the case of XYZ, the assistant controller faces the ethical dilemma of fraudulent activities. However, the ethical considerations would include Identification of the legality of the matter that is checking if the matte is regulated by law or any policy. Secondly, is taking an outside view of the fraud case and considering its implications. Thirdly, it’s also important to think about the parties affected and possibly take professional advice. It is also important to consider the responsibilities of the assistant controller such as preparing financial reports, analyzing financial data and monitoring internal controls and realize the great repercussions of fraudulent financial activities.
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?
The main stakeholder to consider for XYZ industries includes shareholders, customers, employees and management of the firm. The negative impacts of non-compliances may cover Risk management which identifies threats to the organization, while internal controls are designed to provide reasonable assurance regarding the achievement of operational objectives, such as the effectiveness and efficiency of operations, accurate and reliable financial reports, and compliance with applicable laws. Fraudulent activities decimate retired accounts and destroy the company’s reputation a well as causing mental anguish.
What are the potential consequences if you do comply with your supervisor’s instructions? Who will be negatively impacted?
Fraudulent financial activities impact everyone in a company including the perpetrators of financial morality. Such activities lead to a loss of finances as well as the loss of external confidence. It also destroys the company morale with increased costs on audits. Once a fraud has been uncovered, the company faces an ongoing problem of public trust in the organization. While a small business scandalized by fraud might never be the victim or perpetrator of another fraud, its public image might be irreparably tainted. As a consequence, the company may have to pay a higher price for credit, may be refused membership in trade associations or might not be considered for a strategic alliance.
References
Fraudulent Financial Statements, Part I. (2015). Benford's Law, 199-214. doi:10.1002/9781119203094.ch9
Loftsdóttir, K. (2010). The loss of innocence: The Icelandic fnancial crisis and colonial past (Respond to this article at http://www.therai.org.uk/at/debate). Anthropology Today, 26(6), 9-13. doi:10.1111/j.1467-8322.2010.00769.x
