Eve Dalton is the new controller for Smashing Hits, a designer and manufacturer of tennis attire. Shortly before the December 31 fiscal year- end, Liz Sinclair (the company president) asks Dalton how things look for the year- end numbers. Sinclair is not happy to learn that earnings growth may be below 10% for the first time in the company’s five- year history. Sinclair explains that financial analysts have again predicted a 12% earnings growth for the company and that she does not intend to disappoint them. She suggests that ­Dalton talk to the assistant controller, who can explain how the previous controller dealt with this situation. The assistant controller suggests the following strategies:
a. Postpone planned advertising expenditures from December to January.
b. Do not record sales returns and allowances on the basis that they are individually immaterial.
c. Persuade retail customers to accelerate January orders to December.
d. Reduce the allowance for bad debts (and bad debts expense).
e. Smashing Hits ships finished goods to public warehouses across the country for temporary storage until it receives firm orders from customers. As Smashing Hits receives orders, it directs the warehouse to ship the goods to nearby customers. The assistant controller suggests recording goods sent to the public warehouses as sales.

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

  • CreatedAugust 27, 2014
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