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Submitting accurate and fair reports is a key component of ethical accounting practices. However, in the real-world setting accountants are often faced with demands of their superiors to alter the financial information for deceptive purposes. The following paper discusses the ethical concerns of such situations using the example of Mendez Corporation.
The two main stakeholders, in this case, are the president of Mendez Corporation, whose suggestion of altering the companys growth rate poses certain risks to the integrity of its operations, and the controller, who is ultimately responsible for making the decision. It is also reasonable to include the owners of doubtful accounts in the list since their yearly allowance depends on the decision. Finally, the companys management and employees can be considered involved due to the potential impact the decision may have on the companys reputation.
The presidents request poses a major dilemma for the controller. Two reasons can be identified to substantiate this conclusion. First, the controller is the presidents subordinate and is thus expected to comply with the recommendations. At the same time, the controller is expected to make decisions in accordance with the facts and results of financial analysis. Understandably, disobeying a superior can lead to tensions and, in certain cases, result in a workplace conflict. However, in this case, the compliance will constitute a deviation from the recommended accounting practices.
Second, and, perhaps, more importantly, deliberately altering the companys financial accounts constitutes an example of unethical accounting practices. Most likely, the presidents recommendation is aimed at creating the perception of a convincing sustainable growth trend. In other words, the president intends to use the reported information to attain a more favorable image of the companys performance (Bhasin, 2016).
While such an approach may result in the growth of customer base, this result is essentially achieved through fraudulent means. In the long term, such a decision can lead to a number of adverse effects ranging from the loss of trust on the part of customers to legal action from auditing bodies. Therefore, the controller is recommended to explain the possible negative impact associated with the suggested approach, contact an independent actor in an attempt to resolve the situation or, in the worst case scenario, terminate their employment. In any of the identified scenarios, the ethical dilemma will be resolved.
Finally, the Mendez Corporations growth rate should pose a concern to the controller in estimating the allowance of doubtful accounts. The estimation of salary is based on specific estimation mechanisms that involve funds already associated with the accounts in question. Including an unrelated variable does not constitute a valid addition to the estimation process and should thus be avoided unless a specific reason is presented by the president (Kimmel, Weygandt, & Kieso, 2015).
Admittedly, it is possible to speculate that the rapid growth rate was achieved by lowering the Mendez Corporations credit terms, in which case it would be reasonable to bring the salaries back up. However, no information is available that would confirm this assumption. Thus, this possibility is to be disregarded.
As can be seen, increasing the salaries in order to cover the unsustainable growth rate will draw additional attention from customers. Due to the fact that this attention will be obtained through misleading information, it will likely lead to the subsequent decline of the customer base in the long term. In other words, the recommendation is evidently unethical and poses serious concerns to the controller as well as the company in general.
References
Bhasin, M. L. (2016). Accounting manipulation practices in financial statements: An experience of an Asian economy. International Journal of Economics and Financial Research, 2(11), 199-214.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2015). Financial accounting: Tools for business decision making (8th ed.). Danvers, MA: John Wiley & Sons.
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