...1 Legality and Ethicality of Financial Reporting Paula E. Noble University of Phoenix January 19, 2015 Mrs. Juanita Davis 2 Introduction Excello Telecommunications has been a profitable company for several years, but for the first time they have encountered an increase in competition for its products by overseas manufactures. It seems that their earnings will not be met for the year ending 2010. Therefore, management is worried of how the company’s future with investors will be impacted (Legality and Ethicality of Financial Reporting Anti Essays, 2013). A large sale has been made right at the end of the year and this sale could make the company better or not. At the end of the year is when buyers can purchase the items. This is not entered in the accounting period and that’s a problem. The CFO wants to draw attention of the investors, so he is asking if there is a way to report the sales for this year, in this year’s books Legal Issues and Laws In a business, there a federal and state laws that must be followed when financial transaction are being reported. These three important components of accounting go hand and hand when to come down to enforcing laws are the Sarbanes-Oxley act, the AICPA Code of Conduct and the Generally Accepted Accounting Principles. Sarbanes- Oxley was created to protect investors from Corporations that may try to do fraudulent accounting activities. AICPA Code of Conduct sets standards for the professionalism and auditing...
Words: 1155 - Pages: 5
...Legality and Ethicality in Financial Reporting In week3, we are looking into the case of Excello Telecommunications, and study their behavior base on the knowledge of legality and ethicality in financial reporting. Excello Telecommunications has been successful in the past. However, in recent years, the company is facing more and more competitors. For the first in the company’s history, the earnings estimate won’t be met. This means nervous investors and drop in value of Excello stocks. And the top management worries about the effect on bonus and stock options. Someone needs to find a solution to steer the situation around. This is when CFO Terry Reed notices a sale on December 20, 2010. Data Equipment Systems made a purchase of $1.2 million, but requested that no delivery should be made until January 11, 2011. By previous procedures, all sales are recorded when the deliveries are made. Only this time the recording of the transaction, if made by the end of 2010, would solve the problems. Reed consulted with the controller Marty Fuller, and called the accounting department for a solution. Reed’s bottom line is very straight forward: find a creative way to record the sales to Data Equipment Systems before December 31, 2010. Legal Issues and Applicable Laws The accounting team must consider the actions that will take place under the restrictions of laws and regulations. In the accounting profession, the regulations included GAAP (Generally Accepted Accounting Principles), SOX...
Words: 1114 - Pages: 5
...customer in December 2010 and wants to move the sale quickly. Because of storage issues by the Data Equipment, the sale will have to occur in January 2011 when the buyer will have adequate space to hold the equipment purchased. Terry wants to make the revenue at all costs and will do whatever it takes to make it happen. That type of motivation can create questionable decision making that can potentially violate laws and the AICPA Code of Conduct. Excello Legal Issues The failure to meet earnings estimates are of significant concern for the organization where it will prompt questionable decisions by executives. Excello Telecommunications must adhere to accounting practices and regulations in the organization’s activities to ensure financial reporting is accurate. The SOX Act of 2002, Generally Acceptable Accounting Principles (GAAP), and the AICPA Code of Professional Conduct are some guidelines that the company must follow. However, the pressures of meeting financial goals can tempt employees to practice earnings management. Earnings management can effect financial reporting when used extensively to make the company look like...
Words: 1601 - Pages: 7
...Legality and Ethicality of Corporate Governance Name ETH 376 January 30, 2012 Instructor Legality and Ethicality of Corporate Governance United Thermostatic Controls is a publically traded corporation, and currently they are in the middle of an internal audit. The company manufactures and markets residential and commercial thermostats. The company is divided into four regions, U.S.A Sales Division, Western Sales Division, Eastern Sales Division, and Southern Sales Division. Each of these divisions has its own goals, and so far all of them have met them, except the Southern Sales Division, from which Frank Campbell is the director. Due to fluctuation in the market, parts are no longer in a high demand, and as the year end approaches, projections and goals are most likely not to be met. This paper will analysts the decision takes by Frank Campbell and the ethicality of his actions and the results of the internal audit. Legal Issues and Applicable Laws There are several laws that United Thermostatic Controls need to abbey in order to function. Sarbanes-Oxley (SOX) act of 2002, the Generally Accepted Accounting Principles (GAAP), and the AICPA Code of Conduct, and in this case, the regulations that auditors need to comply with while performing an audit, for example the Statement on Auditing Standards, and their responsibilities to the company they work for. Sarbanes-Oxley and United Thermostatic Controls There are several provisions in particular, from the...
Words: 942 - Pages: 4
...Legality and Ethicality of Corporate Governance ETH/376 Legality and Ethicality of Corporate Governance United Thermostatic Controls, a publicly owned company, like many other companies in the world faced financial difficulties in 2010. The company set sales goals in the different regions they serve for 2010; most of the regions met or exceeded their goals although one region was below the target. The director, Frank Campbell, of the region with below target sales thought of an idea to meet the goals. The CPA, Tony Cupertino, was informed of the idea and the effects to the organization. Could the decision cause ethical or legal effects for the organization? Further review of the decision was needed to ensure SOX was followed and to determine if the decision would be equitable for stakeholders. Many people think accounting decisions are always clear based on laws and regulations; however, organizations need to be mindful of effects for everyone involved in the organization. In the United States there is no formal report for corporate governance; however, companies must disclose, and adapt corporate governance guidelines. The CEO of each organization must acknowledge the acceptance of the guidelines and comply with them (Mintz & Morris, 2011). After the Enron case New York CPA candidates must met ethics requirement criteria (Mintz & Morris, 2011). In this respect it is important for United Thermostatic Controls to separate ownership and control in the organization...
Words: 850 - Pages: 4
...Legality and Ethicality of Corporate Governance Nicolle Pack ETH376 / University of Pheonix Abstract The publicly traded company, United Thermostatic Controls, is currently in the middle of an internal audit. The different divisions of the company are regionalized according to their area. The southern division has had struggled with decreasing sales and is having a hard time reaching the target set for their sales. The company pushes the different divisions to be aggressive with increasing revenue and sales. Legality and Ethicality of Corporate Governance Corporate Governance is a combination of rules and regulations that function as a control mechanism to keep management operating ethically and legally. The absence, of corporate governance, would allow a company’s management team to operate under guidelines which may or may not involve integrity, responsibility, or accountability. The publicly traded company, United Thermostatic Controls, is currently in the middle of an internal audit. The different divisions of the company are regionalized according to their area. The southern division has had struggled with decreasing sales and is having a hard time reaching the target set for their sales. The company pushes the different divisions to be aggressive with increasing revenue and sales. Legality United Thermostatic Controls needs to be in compliance with certain laws and accounting regulations in order to maintain operations. These laws and regulations are the Sarbanes-Oxley...
Words: 981 - Pages: 4
...earnings management behavior. We focus on the following question: Do the ends of positive organizational consequences justify the means of earnings management? Earnings management is defined as ‘‘the choice by a manager of accounting policies so as to achieve specific objectives’’ (Scott 2003: 369). Earnings management can be fundamentally classified as either accounting related, involving the manipulation of accounting records through aggressive or fraudulent applications of accounting principles, or operating related, involving choices made by management regarding the timing of investment or operating activities, with the result that reported earnings are influenced by these choices (Lev 2003; Cohen, Dey, and Lys 2008; Roychowdhury 2006; Gunny 2010).1 The effect of earnings management on the value of the firm and the related issues of financial-based incentives for managing earnings has been widely examined in the accounting literature (e.g., Healy 1985; Dechow, Sloan, and Sweeney 1995, 1996; Healy and Wahlen 1999; Fields, Lys, and Vincent 2001; Marquardt and Wiedman 2004; Das, Shroff, and Zhang 2009; see Ronen and Yaari 2008 for a comprehensive review of earnings management studies). Ronen and Yaari (2008) classified earnings management activities as ‘‘black,’’ ‘‘white,’’ or ‘‘gray’’ in terms of their perceived transparency and intended purposes. ‘‘Gray’’ earnings management is defined by Ronen and Yaari...
Words: 9443 - Pages: 38
...Legality and Ethicality of Corporate Governance United Thermostatic Controls is a publically traded corporation and is in the middle of an internal audit going on. The company makes and sells the thermostats that are in refrigerators and furnaces in residential and commercial properties. Frank Campbell (the director of the Southern sales division) is worried about their goals not being met due reasons concerning the big fluctuations in the market, the end of the year approaching, the thermostat parts not being in such a high demand anymore, etc. Frank Campbell starts making decisions concerning the ethicality behind the results of the internal audit. Legal Issues and Applicable Laws Since United Thermostatic Controls is a publically traded company, there are several laws that the Company needs to abide by. The Sarbanes-Oxley (SOX) act of 2002, the Generally Accepted Accounting Principles (GAAP), and the AICPA Code of Conduct. In regards to this specific case, there are certain regulations that the auditors need to follow when they are performing an audit. Sarbanes-Oxley and United Thermostatic Controls When examining the criteria that need to be followed by United Thermostatic Controls concerning the Sarbanes-Oxley (SOX) act of 2002, there are a few specifics that come to mind. For example, Corporate Responsibility for Financial Reports (Section 302) is in reference to the responsibility that the CEO and CFO have when signing off on financial reports, and it certifying...
Words: 949 - Pages: 4
...Legality and Ethicality of Corporate Governance Paper ETH/376 Legality and Ethicality of Corporate Governance Paper United Thermostatic Controls is a publicly owned company that manufactures and markets residential and commercial thermostats (Mintz & Morris, 2011). As a publicly owned company, United Thermostatic Controls common stock is listed and traded on the New York Stock Exchange. Frank Campbell is the director of the Southern sales division. Because of regional economics getting worse, the pressure to achieve sales revenue targets has created stressful and possibly unethical situations. Mr. Campbell feeling the pressure that he would not meet budgeted revenues for the fourth quarter, researched purchase orders received during late November and early December. Mr. Campbell decided to manufacture and ship orders prior to the end of the year to have the sales revenue contribute toward the fourth quarter. This action by Mr. Campbell resulted in sales revenue to be 18.6-percent increase over the actual sales revenue for the third quarter of the year and exceeded the budgeted amount by $80,000. This prompted the internal audit staff to question the appropriateness of the recorded revenue of $150,000 on two shipments made by the Southern division in the fourth quarter of the year. Further investigation revealed that the customers did not want delivery of product until the earliest of February 2011; in addition, one of the customers did not want partial shipment...
Words: 959 - Pages: 4
...Legality and Ethicality of Corporate Governance This paper will discuss the legality and ethicality of United Thermostatic Control’s (“United”) corporate governance. Given the fact that United is a publicly owned company, the role that the Sarbanes-Oxley Act of 2002 (“SOX”) played in this case will be examined. The discussion will cover various regulations such as the AICPA Code of Conduct, GAAP, and the ethicality of the activities that occurred at United. United Thermostatic Controls manufactures thermostats for commercial and retail users. Like most companies its goal is to achieve increased sales and higher profits for its shareholders. This is particularly important because it is public traded and any drop in sales or deviation from earnings might cause the price of the stock to drop. United is divided into four divisions, Eastern Sales, Western Sales, Southern Sales and USA Sales. With the exception of Southern Sales, all of the other divisions are doing well and meeting expectations. Southern Sales has been experiencing a decrease in its sales and is not meeting the targeted amounts. If the year end financial statements are released and this situation has not improved, it would not only have a negative impact on the market price but it would probably affect management’s bonuses as well. The company will face ethical and legal challenges in how to maximize the last quarter of 2010 to meet sales goals. Frank Campbell is the director of Southern Sales. Realizing...
Words: 1073 - Pages: 5
...Excello Telecommunications Abstract This paper will explain the legality and ethicality of financial reporting as it pertains to the Excello Telecommunications case. Other topics that will be touched on will be reporting standards, SOX Act criteria, and alternatives for Excello. Excello Telecommunications Introduction Excello has a dilemma with end of year reporting and in meeting their earnings estimates in accordance to calculations at the beginning of the year. What the CFO wishes to achieve is finding a way to include a large sale in the 2010 year-end reporting statements. By having a hold on the sale, and it remains on their property, they cannot claim this revenue. The team has to look into alternatives that will not only allow this claim but will also meet all GAAP standards. The Legality Mr. Reed discussed the issue with the controller Mr. Fuller and explained what he wanted to obtain on the reports. During this conversation Mr. Fuller advised Mr. Reed of legal criteria in reporting and Mr. Reed indicated that he did not want to break any laws, but he still needed to find a way around certain rules of accounting. When a meeting was called with the accounting department he made sure that the team understood both important aspects of the decision, which are to record the sale and to maintain all GAAP guidelines. At first this sounded like what Mr. Sullivan did is the previous case of Ms. Cooper and WorldCom but then after reading the section in Chapter...
Words: 1284 - Pages: 6
...Legality and Ethicality of Financial Reporting Petra Clark ETH / 376 June 3, 2013 Ding Hardin Abstract Excello Telecommunications is a successful organization, but because of a growing rivalry, the organization has begun to notice their earnings estimations might not be achieved. Excello’s top administrators are worried how this will impact the organization. We will look at possible options as well as their moral ramifications as well as the federal laws which can be applied to the situation. Legality and Ethicality of Financial Reporting There are a number of rules that Excello must follow to comply with if it is to fall in line with accounting actions, especially when it comes to posting dealing as well as financial statements. Some of the regulations include the SOX act of 2002, the GAAP as well as the AICPA Code of Conduct. Excello’s accounting team must take into account the laws and regulations to make the best decision that will be legal, ethical and honest for the organization as well as its clients and vendors. The Sarbanes-Oxley (SOX) act of 2002 was created in reaction to the accounting scams of WorldCom and Enron. The act is a body of provisions that provide guidelines on the responsibilities of the higher management as well as penalties for unethical activities. The CFO of Excello, Terry Reed, wanted to post the sale of $1.2 million of equipment before the end of 2010. This type of transaction would typically be recorded as a sale on the...
Words: 1308 - Pages: 6
...Data Equipment Systems. Typically, this type of transaction would be recorded as a sale on the date of shipment. However, the customer requested that Excello hold on to the product until January 11, 2011, because Data Equipment lacked the warehouse capacity to hold the product until then. The firm must adhere to all the laws and other regulations as set. Among the regulations include Generally Accepted Accounting Principles (GAAP), Sarbanes-Oxley Act of 2002 (SOX), and AICPA code of conduct. The rules impact the mechanism, of financial reporting in the company and also help sin the actions of major principles of accounting. As a result of this, the accounting team must ensure they get the best method that will help in maximizing g the wealth of the shareholders. Albeit the earnings estimates could be gotten through the adoption of illegal treatment of accounting books, it would not be of more help to the firm as it would be more disastrous when the Wall Street detected it. There are a number of rules that Excello must follow to comply with if it is to fall in line with accounting actions, especially when it comes to posting dealing as well as financial statements. Some of the regulations include the SOX act of 2002, the GAAP as well as the AICPA Code of Conduct. Excello’s...
Words: 1411 - Pages: 6
...------------------------------------------------- Managerial Accounting: An Overview Solutions to Questions 1-1 Financial accounting is concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators. Managerial accounting is concerned with providing information to managers for use within the organization. Financial accounting emphasizes the financial consequences of past transactions, objectivity and verifiability, precision, and companywide performance, whereas managerial accounting emphasizes decisions affecting the future, relevance, timeliness, and segment performance. Financial accounting is mandatory for external reports and it needs to comply with rules, such as generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS), whereas managerial accounting is not mandatory and it does not need to comply with externally imposed rules. 1-2 Five examples of planning activities include (1) estimating the advertising revenues for a future period, (2) estimating the total expenses for a future period, including the salaries of all actors, news reporters, and sportscasters, (3) planning how many new television shows to introduce to the market, (4) planning each television show’s designated broadcast time slot, and (5) planning the network’s advertising activities and expenditures. Five examples of controlling activities include (1) comparing the actual number of viewers for each show...
Words: 4275 - Pages: 18
...Business Ethics and Corporate Responsibility Introduction Corporate Responsibility or Corporate Social Responsibility (CSR) has been a term coined in the previous century in order to define the social responsibilities of corporate heads and their corporations in securing the trust of its community by determining and fulfilling its roles towards the betterment of society. Simply following the rules set down by legislation would not do; corporate authorities and workers alike were demanded to be ethically inclined and considerate of how their actions affect society in general, both as residents and providers within their immediate communities. But both ethics and responsibility are vague terms, and prior to the 19th to 20th centuries, neither of them has been attached to business entities like corporations. Business ethics and corporate responsibilities, then, are much vaguer terms in that they entail more than simple and faithful provision of goods and services to people; some may even think that corporate giants and ethics do not exactly go together, or even share a superficial partnership. But these revolutionary concepts have played a major role in redefining corporations in the 21st century; these conceptual standards remain strong factors towards corporate determination of company action and assessment of overall company performance today. This paper will discuss business ethics and corporate responsibilities as sister terms, but also as discrete concepts, both of which...
Words: 2719 - Pages: 11
