Premium Essay

Legality and Ethicality of Corporate Governance

In: Business and Management

Submitted By kara75
Words 942
Pages 4
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 Sarbanes-Oxley (SOX) act of 2002 that need to be taken into more consideration. Section 302 Corporate Responsibility for Financial Reports refers to the responsibility that CEO and CFO have when signing financial reports, this need to be accurate and truthful in the information that they have. In this case there is no evidence that the reports have already be sent to SEC or that have being...

Similar Documents

Premium Essay

Legality and Ethicality of Corporate Governance

...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......

Words: 959 - Pages: 4

Premium Essay

Legality and Ethicality of Corporate Governance

...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. ......

Words: 1073 - Pages: 5

Premium Essay

Legality and Ethicality of Corporate Governance

...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......

Words: 981 - Pages: 4

Premium Essay

Legality and Ethicality of Corporate Governance

...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......

Words: 949 - Pages: 4

Premium Essay

Legality and Ethicality of Corporate Governance

...Legality and Ethicality of Corporate Governance Corporate Governance is control mechanisms that keep management operating within the rules and regulations. Without corporate governance, management could start operating under their own guidelines which may or may not involve integrity, responsibility, or accountability. Publically traded companies are required to have some type of corporate governance in place since the scandals from Enron and WorldCom. The case study that we are discussing is from United Thermostatic Controls. United has many different divisions and they are all decentralized according to their respected area. The southern division has been gradually decreasing in sales and having a hard time meeting their sales targets. The company as a whole is very aggressive with increasing revenue and pushes the different divisions very hard to try to reach or exceed their sales goals. Top management receives bonuses based on these goals as well as corporate profits. The director of the southern sales division decides that he is going to try to push through PO’s that are really for the next year and this raises many questions from the auditors. The question is which laws or regulations will this particular decision break or be non compliant. The first thing that this would go against is the fact that he is pushing customers into taking products that they are not wanting until the next year. Because the products are being sent FOB shipping point, this means that the......

Words: 770 - Pages: 4

Premium Essay

Legality and Ethicality of Corporate Governance

...Comparing IFRS to GAAP Lartarsha Thomas Nicholas Mays Melony Soto-Gonzalez ACC/291 2/22/2015 It is important to know about the two main accounting systems, which are Generally Accepted Accounting Principles (GAAP) and International financial Reporting Standards (IFRS). These systems are used everywhere. All the accounting systems follow double-entry practices that categorize transactions as revenue or expenses, assets or liabilities. GAAP and IFRS have a few differences and it is important to know the differences. In order for our team to have a better understanding of IFRS and GAAP, we kept the following in mind. What are some steps taken by both the FASB and IASB to move to fair value measurement for financial instruments? In what ways have some of the approaches differed? The steps taken to move fair value measurement for financial instruments are: 1) disclosure of fair value for information in the notes. 2) fair value option which permits but does not require companies to record some types of financial instruments at fair values in the financial statements. The approaches differs in both boards facing bitter opposition from various factions. The boards have adopted a piecemeal approach. Different assets, liabilities, and equity instruments are measured at fair value. The standards in U.S. GAAP and IFRS that require or permit fair value measurements are different. As a consequence, an asset, liability, or equity instrument that is measured at fair value in U.S....

Words: 1016 - Pages: 5

Free Essay

Mgt311 Final Guide

...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......

Words: 850 - Pages: 4

Premium Essay

Excello Communications

...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......

Words: 1284 - Pages: 6

Premium Essay

Legality and Ethicality of Financial Reporting

...Legality and Ethicality of Financial Reporting ETH/376 August 25, 2014 Legality and Ethicality of Financial Reporting Excello Telecommunications has a history of excellent performance but with a surge in oversea competitors the company may not be able to meet its financial estimates for the first time. Executives were worried that not being able to meet the financial estimates could impact stock options, bonuses, and the share price of company stock. While looking to find a way to meet the financial estimates Terry Reed, the CFO, discovers a transaction on December 20, 2010 that might solve the problem. Excello sold $1.2 million of equipment to Data Equipment Systems. This type of transaction would be recorded as a sale on the date of the shipment. In this case the customer had requested that Excello hold the product until January 11, 2011. This was due to Data Equipment Systems not having the needed warehouse room for the product until then. This means that the sale would not be recorded until the product is shipped in 2011 but if there was a way to record the transaction before December 31 then it could help to meet the financial estimates. Reed went to the controller, Marty Fuller, to discuss this dilemma. Fuller and Reed both understand the rules for accounting for the sale of goods that are help for future delivery. Reed then went to the accounting department to discuss what can be done to record the revenue in 2010 while keeping the decision defensible from...

Words: 1231 - Pages: 5

Premium Essay

Legality and Ethicality of Financial Reporting

...Legality and Ethicality of Financial Reporting Janet Tran ETH/376 Kathrine Parks University of Phoenix/Axia July 21, 2014 Excello Telecommunications was presented with a dilemma on how the company should report earnings so that they would appear to have met earning estimates for the 2010 financial year. The CFO, Terry Reed, was concerned with how failure to meet earning estimates would affect bonuses, stock options, and the share price of Excello stock. On December 201, 2010, the company sold $1.2 million of equipment to Data Equipment Systems. However, Data Equipment Systems requested that Excello hold on to the product until January 11, 2011, because they do not have the capacity to hold the product until then. This means the $1.2 million sale cannot be recorded until Data Equipment Systems receives the product, which would be in the next financial year. The accounting team came up with three scenarios on how to creatively report this $1.2 million in sales for 2010 financial reports. This paper will examine the legal aspects, the financial standards involved, and ethicality of the Excello Telecommunications case. In this case, legally the company must adhere to many accounting laws and regulations. One of the laws called Sarbanes-Oxley Act of 2002 (SOX) would have a huge impact and influence in this case. SOX was created to restructure and further explain the role of corporate governance in corporate America...

Words: 1233 - Pages: 5

Premium Essay

Excello Commuminations

...looked at as an earnings management tactic, which is viewed as an unethical practice by the AICPA and GAAP. The CFO approaches his accounting department with the expectation that they come up with a solution to this problem. The accounting department is well aware of the rules and guidelines in place when it comes to revenue recognition, but as a team come up with three possible scenarios. One, to transfer this order to an offsite warehouse to hold until 2011, creating the perception that the product was sold. Two, transfer the product to Data Equipment Systems on December 31, with an agreement that they can return the product for a full refund in January 2011. Three, offer a discount of 10% to accept the product by December 31, 2010. Legality of each scenario With the first scenario, the idea of transferring the product to an offsite warehouse is the most blatant misstatement of revenue. Recording revenue before the earnings process...

Words: 1437 - Pages: 6

Premium Essay

Individual Legality and Ethical of Corporate Governance

...Week 3: Individual Legality and Ethicality of Corporate Governance Alisha J. Simental March 6, 2014 Katherine Parks Introduction In Case 3-3, we are introduced to the United Thermostatic Controls," that engages in the manufacturing and marketing of residential and commercial thermostats."(S. Mintz, R. Morris, 2011) They use their thermostats control temps in refrigerators and furnaces, mainly selling to retailers. According to the text, economic conditions and the reduction of demand has created internal problems and tension to still achieve target revenues. In addition, the sales department is feeling the pressure to increase or expand earnings. The internal auditor found two cases that did not follow correct procedures, because the accounting department recorded revenue for these earlier in order to meet the target revenue, due to pressure from Campbell the director of sales division. In this paper I am going to discusses the legal activities, criteria of SOX act, ethical activities, and decide on the best nest step decision. Legal Activities The two shipments made up about 150,000 in revenue and were the main concern for the internal auditor. In the first shipment United ship the product on the 31st of December even though the company, Allen did not want it delivered before the 1st of February due to not needing it until the 1st of March. In the second shipment, the company shipped a partial shipment to Bilco Corporation on the 30th of December ......

Words: 1232 - Pages: 5

Free Essay

A Legal and Ethical Examination of Corporate Tax Shelters

...glean an understanding of corporate tax shelters, in respect to legal and ethical considerations. Tax shelters are often viewed with negative connotations, yet the general public holds different perceptions of the various classifications of tax shelters, tax avoidance, tax evasion, and tax flight (Kirchler, Maciejovsky, & Schneider, 2003). While this suggests a tolerance based on legal concerns, there exists a growing accountability for corporate social responsibility, “whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities, and others stakeholders, as well as their environment” (Guliani, 2014, p. 1117). Part of this includes, “companies paying their due taxes and obeying the law” (Guliani, 2014, p. 1120). In order to analyze the ethicality of tax shelters, this paper will introduce a variety of corporate tax shelters, discuss corporate tax shelters in relation to tax avoidance and tax evasion, explore the impact of corporate tax shelters on stakeholders, and examine the affect corporate social responsibility has on tax liability. A Legal and Ethical Examination of Corporate Tax Shelters As each business embarks on a pursuit for profit, companies often find opportunities to reduce tax liabilities in the form of corporate tax shelters. Corporations should be aware that when reducing tax liability, they must consider the legality and the morality......

Words: 3337 - Pages: 14

Premium Essay

Managers' Ethical Evaluations of Earnings Management and Its Consequences

...Managers’ Ethical Evaluations of Earnings Management and Its Consequences* ERIC N. JOHNSON, University of Wyoming GARY M. FLEISCHMAN, University of Wyoming SEAN VALENTINE, University of North Dakota KENTON B. WALKER, University of Wyoming 1. Introduction and motivation The purpose of this study is to investigate, in an experimental setting, how favorable versus unfavorable organizational consequences influence managerial responses to an employee’s 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......

Words: 9443 - Pages: 38

Premium Essay

Accounting

...Volume 3 Number 1 2004 Accounts Manipulation: A Literature Review and Proposed Conceptual Framework by Hervé Stolowy, HEC School of Management (Groupe HEC), Department of Accounting and Management Control, 1, rue de la Libération, 78351 - Jouy en Josas Cedex, France and Gaétan Breton, Université du Québec à Montreal, Department of Accounting Sciences, P.O.B. 8888, Succursale Centre-Ville, Montréal (Québec), H3C 3P8 - Canada Abstract Accounts manipulation has been the subject of research, discussion and even controversy in several countries including the USA, Canada, the U.K., Australia, Finland and France. The objective of this paper is to provide a comprehensive review of the literature and propose a conceptual framework for accounts manipulation. This framework is based on the possibility of wealth transfer between the different stakeholders, and in practice, the target of the manipulation appears generally to be the earnings per share and the debt/equity ratio. The paper also describes the different actors involved and their potential gains and losses. We review the literature on the various techniques of accounts manipulation: earnings management, income smoothing, big bath accounting, creative accounting, and window-dressing. The various definitions of all these, the main motivations behind their application and the research methodologies used are all examined. This study reveals that all the above techniques have common elements, but there are also important......

Words: 21102 - Pages: 85