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Legality and Ethicality

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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 (Sarbanes-Oxley Act of 2002), and AICPA Code of Professional Conduct. The team need to use these regulations as guideline to ensure that no illegal misstatement will be presented and get the best result from the sale of $1.2 million to Data Equipment Systems.
GAAP and Excello Telecommunications
GAAP is a set of standards and principles used in the United States to ensure formality and

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