...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...
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...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...
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...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...
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...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...
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...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 $1.2 million, but requested that no delivery should be made until January 11, 2011. By previous procedures, all sales are recorded when the deliveries are made. Only this time the recording of the transaction, if made by the end of 2010, would solve the problems. Reed consulted with the controller Marty Fuller, and called the accounting department for a solution. Reed’s bottom line is very straight forward: find a creative way to record the sales to Data Equipment Systems before December 31, 2010. Legal Issues and Applicable Laws The accounting team must consider the actions that will take place under the restrictions of laws and regulations. In the accounting profession, the regulations included GAAP (Generally Accepted Accounting Principles), SOX...
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...Legality and Ethicality of Financial Reporting Excello Telecommunication is a company that has historically been successful. Hoe!er"due to rising competition in their industry" they may not meet their earnings estimates. The failure to meet earnings estimates can rea# ha!oc on an organi$ation. %hareholders get ner!ous" stoc# prices decrease" and analysts could gi!e the company negati!e press. &n top of that" executi!es are orried about ho the failure to meet these estimates could impact their stoc# options and bonuses. 'n order to meet expectations" there is a critical sale that is ta#ing place. Hoe!er" the sale re(uires the goods to be deli!ered in the subse(uent accounting period" not the current period. 'n folloing )**+" the company cannot recogni$e re!enue during the current period. Hoe!er" Terry Reed" the ,F&" re(uires that the accounting team figure out a ay to boo# the sale during the current accounting period. The accounting team is lead by -arty Fuller. e are going to loo# at the legal and ethical ramifications of underta#ing this route. e ill loo# not only at the moral conse(uence" but also at hether or not the company is brea#ing the la. Legal Issues and Applicable Laws Excello Telecommunication must adhere to many las and regulations. *mong them are %arbanes/&xley *ct of 0110 2%&4" )enerally *ccepted *ccounting +rinciples 2)**+4" and the*',+* code of ,onduct. These rules impact not only the financial reporting mechanism of the company" but also...
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...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...
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...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...
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...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...
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...meeting its financial estimates are looking bleak. Failure to meet earnings expectations can reduce the availability of bonuses, stock options and could lessen the value of the company. Because of the threat in not meeting estimated earnings, the company’s CFO Terry Reed has a plan to make one last effort to meet company goals. Terry Reed has knowledge about a sale of $1.2 million to a 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...
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...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...
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...United Thermostatic Controls This paper will show the legality of the activities that happened within United Thermostatic Controls based on federal, state, and local laws. As this case is examined the Sarbanes-Oxley act will be discussed as it played a role in this case because United is a publicly owned company. Also this paper will show the ethicality, if the activities were equitable to internal and external stakeholders, and what is the next step based on everything that has happened. Ethics is something that should always be at the forefront of every decision a company makes because if an unethical act is committed it will come out at some point, and tragic circumstances can come from the act. First this paper will discuss the legality of the activities that transpired in the United case based on federal, state, and local laws. The legal issue present in the United case is the revenue recognition principle. United’s director of the southern sales division, Frank Campbell, reviewed purchase orders for the end of the year to determine if shipments could be made to customers prior to year end. Campbell looks at it that this could simply be fixed by accelerating production and shipping to increase sales revenue for the current fiscal year (Mintz & Morris, 2011). Campbell chooses to go ahead with the shipments that caused an increase in the revenue by 150,000; however, during test controls the internal audit staff questioned the recording of the shipments during the...
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...Legality and Ethicality of Financial Reporting 2-25-2013 Ethics 376 Phoenix University Unethical Practices are forbidden in every industry but at the same time they are also performed. Unethical practices occur when a business does “not conform to approved standards of social or professional behavior”. ("The free dictionary,") There are many situations that can lead to unethical practices and behaviors within the accounting profession. The Sarbanes Oxley Act of 2002 was put into effect to prevent a lot of these unethical practices. In every business owner’s life, there comes a time when a decision must be made, that if is made in favor of the company and/or for personal benefit will be considered unethical. The business owner is the person who sets the standard for his/her company. He/she is the person who sets up guidelines that demonstrate the contrast between ethical and unethical values and behavior, establishing the first step in creating a company culture emphasizing and reinforcing ethical standards. In the accounting industry, professionals not only have the standard practices of accounting but also, board accountancy rules, such as SOX and GAAP, when creating ethical standards. Federal and state laws play a big consideration during this time. Such a time came for CFO of Excello Telecommunications when he considered inappropriately posting a $2.1 million transaction to boost year-end earnings. At the end of 2010, Excello...
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...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 even...
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...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...
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