Question

[Post First Discussion] Chapter 7 Post S Instructor - Lead Question Anton Blair is the manager of a medium-size company. A few years ago, Blair persuaded the owner to base a part of his compensation on the net income the company earns each year. Each December he estimates year-end financial figures in anticipation of the bonus he will receive. If the bonus is not as high as he would like, he offers several recommendations to the accountant for year- end adjustments. One of his favorite recommendations is for the accountant to reduce the estimate of doubtful accounts. Required 1. What effect does lowering the estimate for doubtful accounts have on the income statement and balance sheet? 2. Do you believe Blair's recommendation to adjust the allowance for doubtful accounts is within his rights as manager, or do you believe this action is an ethics violation? Justify your response. What type of internal control(s) might be useful for this company in overseeing the manager's recommendations for accounting changes? 3 188 FS $ A 4 % 5 6 & 7 8 R Т. Y U

Answer 1

Question 1 :

Lowering the estimate for Doubtful accounts will reduce the expenses for the year as a result Increasing the Net Income for the year.So that the manager will get high incentive as Bonus.

Lowering the Estimate will Increase the assets(debtor's balance) & Reduce the Liabilities(provision for doubtful debts balance). As a result ,Shareholder's equity is shown at a higher level.

Question 2 :

No, Adjusting the allowance for doubtful accounts is not within the right of the Manager.

This is an ethical violation as he is placing his interest over the company's interest.

Manager should not have access to rule the accountant.

Question 3 :

Internal controls useful for overseeing the manager's recommendation are :

• Segregation of Duties
• Dual Authorisation for any change in the accounts of the company.
• Rotation of Employees(like Accountants) for a periodic Interval