In consideration of what we have learnt in class, financial reporting follows certain conventions. There are different types of principles that form the basis of accounting. The four main ones are matching concept, revenue recognition concept, objectivity and consistency. In accounting, matching concept requires that expenses need to be matched with the revenues generated from the expenses. In the case of xyz, there is a large category of debts that have accumulated for more than 120 days. Perhaps, xyz operates the principle that debts that go beyond 120 days should be provided for since chances of their repayment is doubtful. In this case, the allowance for uncollectible accounts is $180,000, yet the controller wants the amount reduced to $135,000.
From the above misstatement of funds, the balance sheet and the statement of comprehensive income will be affected in an equal and proportionate measure. When a firm creates an allowance of uncollectible accounts, it is treated as an expense, and it has a reducing effect on the profits. In the case of xyz companies, expenses have reduced by $ 45,000 which is derived from ($180,000-$135,000). As a result, profits will increase by the same amount in the income statement. On the balance sheet, the profits will be overstated by $ 45,000.
The ethical dilemma I face is choosing to stand with professionalism and obeying with the supervisor’s instructions. In accountancy, professional code of ethics requires accountants to be honest and to act with integrity (Kury, 2018 p 122). My responsibilities as a controller is to prepare financial statements that are accurate and truthful in dates and amounts from source documents like invoices and bills. The controller is asking me to change the amounts and even dates by preparing a new invoice with a revised date, yet no goods and services were rendered. That is not truthful and goes against my professionalism. On the other hand, the management wants to report that it is making profits by making the misstatements. The ethical considerations are that users of financial statements are going to rely on misstated financial statements to make their economic decisions. Overstating the financial statements by $ 45,000 may be considered as material enough to influence the economic decision of users of financial statements.
Every organization has internal and external stakeholders. Internal stakeholders are such as the management, the board of directors, employees and the owners. External stakeholders are such as debtors, suppliers, investors, customers and the government. The negative impacts that may arise or not obeying the supervisors instructions are that the management may be seen as not working diligently enough to grow the wealth of owners. The role of management is to put capital resources into fruitful use to generate income to grow the shareholders’ value.
The potential consequences of complying with the supervisor’s instructions are that the financial statements will be misleading and untruthful, and they will not reflect the true position of XYZ industries. Investors will be negatively affected because they may decide to buy shares by looking at the profitability of the firm that is not there in reality. Creditors are also negatively affected because they ,might lend to xyz on grounds that the business is profitable, yet in the event xyz might be unable to service its loans since it does not have physical cash, but the profits exists only in books. This might be a source of corporate scandal like what happened to Enron Corporation that was seen as profitable in books, yet creative accounting was the order of the day (Markham 2015 p 344).
From the above misstatement of funds, the balance sheet and the statement of comprehensive income will be affected in an equal and proportionate measure. When a firm creates an allowance of uncollectible accounts, it is treated as an expense, and it has a reducing effect on the profits. In the case of xyz companies, expenses have reduced by $ 45,000 which is derived from ($180,000-$135,000). As a result, profits will increase by the same amount in the income statement. On the balance sheet, the profits will be overstated by $ 45,000.
The ethical dilemma I face is choosing to stand with professionalism and obeying with the supervisor’s instructions. In accountancy, professional code of ethics requires accountants to be honest and to act with integrity (Kury, 2018 p 122). My responsibilities as a controller is to prepare financial statements that are accurate and truthful in dates and amounts from source documents like invoices and bills. The controller is asking me to change the amounts and even dates by preparing a new invoice with a revised date, yet no goods and services were rendered. That is not truthful and goes against my professionalism. On the other hand, the management wants to report that it is making profits by making the misstatements. The ethical considerations are that users of financial statements are going to rely on misstated financial statements to make their economic decisions. Overstating the financial statements by $ 45,000 may be considered as material enough to influence the economic decision of users of financial statements.
Every organization has internal and external stakeholders. Internal stakeholders are such as the management, the board of directors, employees and the owners. External stakeholders are such as debtors, suppliers, investors, customers and the government. The negative impacts that may arise or not obeying the supervisors instructions are that the management may be seen as not working diligently enough to grow the wealth of owners. The role of management is to put capital resources into fruitful use to generate income to grow the shareholders’ value.
The potential consequences of complying with the supervisor’s instructions are that the financial statements will be misleading and untruthful, and they will not reflect the true position of XYZ industries. Investors will be negatively affected because they may decide to buy shares by looking at the profitability of the firm that is not there in reality. Creditors are also negatively affected because they ,might lend to xyz on grounds that the business is profitable, yet in the event xyz might be unable to service its loans since it does not have physical cash, but the profits exists only in books. This might be a source of corporate scandal like what happened to Enron Corporation that was seen as profitable in books, yet creative accounting was the order of the day (Markham 2015 p 344).
