Pressure to sustain a high growth rate will result in more bad debt
because salesman are pressured to do more selling and higher risk sales
are easier to find because the competition won't sell on credit those
people/companies that have higher risk.
Any time that you are putting adverse information on a financial report you are better off over stating rather than understating therefore use the higher percentage (it might be closer to actual).
What happens if it actually is 5%?? If you use your 2% then the president will point a finger and probably find someone with better figures for your job. If you used 3% then you can both claim it was because of trying sustain unrealistic growth levels. Also there is a rule about being conservative on estimates that affect the financial statements. A harder question would be: what if he wanted you to lower the percentage to raise income on the income statement? think boss' year end bonus....and suppose he offers you a little perk like an all expense paid vacation.
You also have an ethical duty to yourself to keep your job. One percentage point on an ESTIMATE is not that big of a dilemma.
SEC; Enron and Aurthor Anderson CPAs. Aurthor Anderson was one of the Big 4 CPA firms in the world. They went along with some executives at Enron to not put billions of dollars of liabilities on the AUDITED financial statement. SEC took them down. Thousands of people lost their jobs at Aurthor Anderson. ETHICS to those other employees/co-workers and major partners.
IBM and Lotus 123:
A secretary at IBM found out that IBM was going to close on a deal to buy Lotus 123 (a spreadsheet company). Her, her husband , and their friend all mortgaged their homes and bought stock in Lotus. SEC discovered this and charged them all with insider trading.
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