Question

Ethical Dilemma Philip Stanton, the executive manager of Thomson Pharmaceutical, receives a bonus if the company’s net income in the current year exceeds net income in the past year. By the end of 2019, it appears that net income for 2019 will easily exceed net income for 2018. Philip has asked Mary Beth Williams, the company’s controller, to try to reduce this year’s income and "bank" some of the profits for future years. Mary Beth suggests that the company’s bad debt expense as a percentage of accounts receivable for 2019 be increased from 10% to 15%. She believes 10% is the more accurate estimate but knows that both the corporation’s internal and external auditors allow some flexibility in estimates. What is the effect of increasing the estimate of bad debts from 10% to 15% of accounts receivable? How does this "bank" income for future years? Why does Mary Beth’s proposal present an ethical dilemma? Explain!

Answer 1

Answer: Mary Beth's reliance on the estimate flexibility of auditors to make a biased decision is an ethical dilemma.

Explanation: An ethical dilemma is also called an ethical paradox. It is a situation whereby two possible unacceptable moral issues are weighed in making a decision.

Ethics is an important consideration in business which guides one in knowing what is right and wrong and doing it.

Mary Beth's ethical dilemma is bothered on the objective of the decision she made which was to reduce profit. Making changes to estimates would not be a problem but when you know that that estimate is not preferable but the best in a biased atmosphere is an ethical paradox.