Chapter 1, Problem 1.26AP

Ethical dilemmas (Learning Objective 4)

Barb Perot is the new controller for EduTechno Software, which develops and sells educational software. Shortly before the December 31 fiscal year-end, Tony Cattrall, the company president, asks Perot how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 15% for the first time in the company’s five-year history. Cattrall explains that financial analysts have again predicted a 15% earnings growth for the company and that he does not intend to disappoint them. He suggests that Perot talk to the assistant controller, who can explain how the previous controller dealt with this situation. The assistant controller suggests the following strategies:

1. a. Persuade suppliers to postpone billing until January 1.
2. b. Record as sales certain software awaiting sale that is held in a public warehouse.
3. c. Delay the year-end closing a few days into January of the next year so that some of next year’s sales are included as this year’s sales.
4. d. Reduce the allowance for bad debts (and bad debts expense).
5. e. Postpone routine monthly maintenance expenditures from December to January.

Requirement

Which of these suggested strategies are inconsistent with IMA standards? What should Perot do if Cattrall insists that she follow all of these suggestions?