SCENARIO:You are the staff accountant of ABC Company. Your work is mainly focuses on Accounts Receivablegroup. You record the accounts receivable and provide allowance for doubtful accounts based oncompany's estimate. On Year 2012 the company suffered from loss due to environmental disobedience.The DENR fine them 1M pesos for the infraction of the sea. With this, the company revise its policy ofrecording allowance of bad debts from 5% to 2%.The company has significant account receivable for the year and collection for this accounts are highlypossible. On your trending analysis report, you noticed that you rarely record and write off any baddebts as part of the policy.You join the meeting with the new accounting policy and Hilary, the CFO said that the decrease of baddebts expense is immaterial to total accounts receivable. She insisted the accounting principles ofmateriality.Your controller agrees and immaterial to present the changes in the financial statements and ask you tocalculate the potential bad debts. You calculated the new bad debts and resulted to 120,000. The totalaccounts receivable is 600,000.I Who are the key parties who can influence, or will be affected by, your decision?II. What fundamental ethical principles for accountants are most applicable and is there an apparentconflict between them?

All items that may be material to affect the true state of affairs of the financial statements…

Answered: key parties who can influence, or will…

Business

Accounting

key parties who can influence, or will be affected by, your decision?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

SCENARIO:
You are the staff accountant of ABC Company. Your work is mainly focuses on Accounts Receivable
group. You record the accounts receivable and provide allowance for doubtful accounts based on
company's estimate. On Year 2012 the company suffered from loss due to environmental disobedience.
The DENR fine them 1M pesos for the infraction of the sea. With this, the company revise its policy of
recording allowance of bad debts from 5% to 2%.
The company has significant account receivable for the year and collection for this accounts are highly
possible. On your trending analysis report, you noticed that you rarely record and write off any bad
debts as part of the policy.
You join the meeting with the new accounting policy and Hilary, the CFO said that the decrease of bad
debts expense is immaterial to total accounts receivable. She insisted the accounting principles of
materiality.
Your controller agrees and immaterial to present the changes in the financial statements and ask you to
calculate the potential bad debts. You calculated the new bad debts and resulted to 120,000. The total
accounts receivable is 600,000.
I Who are the key parties who can influence, or will be affected by, your decision?
II. What fundamental ethical principles for accountants are most applicable and is there an apparent
conflict between them?

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