Why Do You Believe Blair's Recommendation To Adjust The Allowance For Doubtful Accounts?

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.

Blair’s recommendation to the controller by means of reducing the estimate of doubtful accounts, I believe is an ethics violation. By lowering the estimate, the net income for the company would be overstated which would result in Blair getting a higher bonus. The company should only use the ethical standards that they have done in the past in estimating uncollected accounts such as accurate objective measures. Blair may have a justifiable reason, but it appears that his bonus is his top priority, and not the interest of the company’s accounting practices. Continuing to reduce the estimate could lead to an investigation by the SEC for accounting ethical violations. I feel Blair is placing the controller job in jeopardy, because the controller is the one held responsible for the year-end reports.

What type of internal control(s) might be useful for this company in overseeing the manager's recommendations for accounting changes?
• Company invoices should be pre-numbered and make sure that all numbers are accounted for periodically.
• The manager should have accounts receivable staff to make a strong effort in collecting all outstanding accounts, before any write-offs.
• Accounts receivable write-offs should be approved by an employee (manager or supervisor) who does not handle cash receipts. For when computing bad debts expense as a percent of sales, managers monitor and adjust the percent so it is not too high or too low.
These are just a few internal controls that might benefit the