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. The legality of the activities of United Thermostatic Controls are questionable based on local, state, and federal laws or regulations. The director of Southern sales wanted to modify information on upcoming sales to ensure his area met the sales goals. Campbell wanted to take over control or the situation while also maintaining ownership of his region. Modifying this information would achieve the goals; however, defying accounting laws, and standards by recording information early. The auditor did not like this option as there were no acceptance or payment for the prematurely shipped merchandise from the customers. Cupertino was acting in accordance with corporate governance by taking control of the situation while leaving ownership in the hands of Campbell.
The decision could violate Sarbanes-Oxley (SOX) Sections 401, 801, 807, and 906. Section 401 could be violated if the financial statement is filed without respect to GAAP, rules, and regulations set forth for accounting standards. Sections 801, 807, and 906 of SOX relate to each other in that penalties, fines, and/or imprisonment can be imposed for cover ups, false certifications, fraudulent, or other unethical actions reported on a financial statement.
The situation described for United Thermostatic Controls may be equitable to internal and external stakeholders by achieving goals for 2010. However, the ethicality of the activities is questioned based on the actions of Campbell. Campbell wanted to manipulate data to ensure goals were met and no questions were asked for the low numbers for his region. The manipulated data would have a positive effect for both external and internal stakeholders for 2010. However, the manipulation could sway future financial statements and therefore have negative impressions to the related stakeholders. The manipulated data could influence the stakeholders for 2010 if the financial statements or the organization were audited, and the data was uncovered. The internal auditor must perform his duties based on GAAP and in accordance with federal, state, and local laws. Cupertino should discuss the situation with the CFO. The CFO would have to acknowledge accurate information on the financial statements, according to Section 302 of SOX. The CFO should find alternatives for the situation to benefit the organization while acting ethically. The best option for Campbell and the organization would be to enter the correct information based on sale data and delivery data. The correct information would show the Southern region declined sales; however, reflect ethically on the company for entering appropriate and accurate information on the financial statements. The organization could contact the companies the deliveries are scheduled for and request earlier delivery and payment. An earlier delivery and payment would achieve the sales goals and create no ethical concerns for entering data.
The situation faced by United Thermostatic Controls is not uncommon for many organizations. Organizations set goals for the various regions they serve and sometimes the goals are not met. The organization has to find the best solution for the situation while maintaining a high ethical and moral standing. Campbell wanted to cover up the low sales by manipulating data for sales not yet delivered. Cupertino, the internal auditor, did not agree with this decision and continued investigating the situation. United Thermostatic Controls must decide what they can do to ensure they are in compliance with state, federal, and local laws in addition to following SOX regulations. The organization should try to create an equitable decision for both their internal and external stakeholders while keeping ethics in mind. Although the organization has multiple choices to solve this situation, they must be honest and fair in the reporting of information.

Reference
Mintz, S. M., & Morris, R. E. (2011). Ethical obligations and decision making in accounting (2nd ed.). New York, NY: McGraw-Hill/Irwin.