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Ethics Case 7-5
Rachel Wills
Ethics Case 7-5
Uncollectible accounts
ACCT 301
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Ethics Case 7-5
For this case, I have been recently hired as the assistant controller for Stanton Industries,
which is a large, publicly held manufacturing company. My immediate superior is the controller
who, in turn, is responsible to the vice president of finance. I have been assigned the task of
preparing the year-end adjusting entries.
In the receivables area, I have prepared an aging of accounts receivable. I also applied
historical percentages to the balance of each of the aging categories. The analysis indicates that
an appropriate balance for the allowance for uncontrollable accounts, which is $180,000. The
existing balance in the allowance account prior to adjusting the entry is $20,000 credit balance.
After showing this analysis to my controller, I have been told 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 aging category. This ends up changing
the required allowance for the uncollectible accounts from $180,000 to $135,000. After asking
the controller for an explanation for the change he tells me, “We need the extra income; the
bottom line is too low.”
The effect on the change lowers the income tremendously. Changing the $180,000
balance to $135,000 drops the income balance for uncollectible accounts by $45,000. In doing
so, this would cause taxes to be lower as well. For example, if taxes were 30% on the income
balance before the change, then taxes would be $54,000. But if the income balance was lowered
too $135,000, then taxes at a 30% rate would be $40,500. This result would mean the company
would pay less in taxes by lowering the income. The difference between the two at a 30% tax
rate is $13,500.
There is an ethical dilemma that I would face in doing so and listening to my controller
and changing the income on the year-end adjusting entries. In order to change the income and
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Ethics Case 7-5
listen to my controller, there would need to be legal documentation as to why there is a need for
the change. One of my options is that I could listen to my controller and help him try to cheat on
paying taxes, because essentially what he is doing is trying to make the company pay less taxes.
This would also require me to break the law because, like I stated before, there is no legal
documentation as to why there is a need for the change.
The other option I have is to go to the vice president of finance and explain to him what
the controller is trying to do. However, if the vice president of finance knew that the controller
was trying to pay less in taxes and also wanted me to forge the entries, I could end up losing my
job for not wanting to commit fraud. Although on the other hand, the vice president of finance
may not know that the controller is trying to commit tax fraud and may end up firing him
because he would be putting the company in danger.
The Bible talks about fraud and misleading people. In this case, that is exactly what is
happening. My controller wants me to commit fraud and mislead the IRS to think that the
company didn’t earn as much money and wouldn’t need to pay as much in taxes. The Bible
verses that I think best describes this situation are Luke 16:10-13, “10 “If you are faithful in little
things, you will be faithful in large ones. But if you are dishonest in little things, you won’t be
honest with greater responsibilities. 11 And if you are untrustworthy about worldly wealth, who
will trust you with the true riches of heaven? 12 And if you are not faithful with other people’s
things, why should you be trusted with things of your own? 13 “No one can serve two masters.
For you will hate one and love the other; you will be devoted to one and despise the other. You
cannot serve God and be enslaved to money.”
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Ethics Case 7-5
