The controller of Diaz Co. believes that the yearly allowance for doubtful accounts for Diaz Co. should be 2% of net credit sales. The president of Diaz Co., nervous that the stockholders might expect the company to sustain its 10% growth rate, suggests that the controller increase the allowance for doubtful accounts to 4%. The president thinks that the lower net income, which reflects a 6% growth rate, will be a more sustainable rate for Diaz Co.

Instructions

(a) Who are the stakeholders in this case?

(b) Does the president's request pose an ethical dilemma for the controller?

(c) Should the controller be concerned with Diaz Co.'s growth rate? Explain your answer.

A) - In the following case, the stakeholders seem to be the chairman of that company, the Controller of that company. The Stockholders as well as all the other group that has an interest in the organization's balance sheet, including an investment manager or even a banker seeking to give cash.

B) - Yes, the appeal of the chairman raises the legal issues for such a manager. Due to confusing income reports as suggested by the chairman, the operator poses a moral issue. In the viewpoint, for safeguard the interests of big business and not to confuse customers by representing wrong net profits, the manager will be guided. Required to disclose correct net profit that, on effect, influences their rate of growth ratio. Aggregate-income growth gives a clear view of the pace where the businesses also raised their earnings. All others remaining identical, shares having stronger net profit rates of growth are much more attractive as compared to others.

C) - Yes, of course, the manager will be worried about the rate of growth of that company due to the rate of growth that should be focused upon rational as well as reliable income reports. The manager does not file income reports for the chairman's goal of meeting or retaining the defined rate of growth. The following inflation rate would be focused upon operational and financial performance, not on some distorted financial reporting.

anthougo anthougo · Answer 2 · 2021-12-23T16:19:58+01:00

a) In this case, the stakeholders of Diaz Co. include the stockholders (owners), the president (management), and the controller (employee).

Other stakeholders of Diaz Co. include the government, the community in which the company is situated, the public, and other interest groups.

b) The president's request does not pose an ethical dilemma for the controller. The two persons can discuss their reasons for arriving at different rates and choose an agreeable rate for the allowance for doubtful accounts. The rate for the allowance for doubtful accounts is based on experience and business expectations.

c) The controller should be concerned with Diaz Co's growth rate, which is demonstrated by the growth in the corporate's sales revenue and profitability. Without growth, a company atrophies. Growth and growth rate are required for every sustainable business entity.

Thus, the controller should be ensure that Diaz Co's achieves a growth rate compared with the industry average or similar entities within the company's environment.

Data and Calculations:

Controller's annual allowance for doubtful accounts = 2% of net credit sales

President's suggested allowance for doubtful accounts = 4% of net credit sales

Expected growth rate by stockholders = 10%

Sustainable growth rate = 6%

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