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Legality and Ethicality of Financial Reporting

In: Business and Management

Submitted By pclark64
Words 1308
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 date of shipment; however, Data Equipment Systems did not have the room to keep the stock.

If Reed records the $1.2 million sale in 2010 instead of 2011, he deceives the internal and external users of the financial reports by artificially inflating the end of year reports for 2010. This is an ethical breach as well as an impropriety against GAAP standards. If Excello inflates earned

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