Ethality Of Excello Essay

1377 words - 6 pages

Ethical and Legal Implications of Excello Telecommunications
Cheryl Moore
March 4, 2012
Susan Paris

Ethical and Legal Implications of Excello Telecommunications
Excello Telecommunications has suffered a downward financial spiral. This downward spiral will affect bonuses, share prices, and stock options (Mintz & Morris, 2011). Terry Reed, the Chief Financial Officer of Excello Telecommunications, frets over showing the downswing in profits. In searching for additional reportable income, he came across a delayed sale of equipment. Per contract, the equipment should not be billed or shipped until the next year, when the equipment would ship. This is standard practice for ...view middle of the document...

Also in section 302, companies are required to fairly present the financial condition of the company. The actions of Mr. Reed indicated that he intends to mislead the shareholders and the Securities Exchange Commission by reporting Excello as more profitable than reality states.
In section 401 of Sarbanes-Oxley Act companies are required to report accurate financial information. Reporting accurate financial information is to report actual sales and not pre-book future sales. Stepping outside the controls in place would have to be reported in the financial reports. However, this would make the advance recording of the sale mute. Therefore, it is likely that Mr. Reed would not report the change in control or that the sale is prematurely logged.
In section 409 of Sarbanes-Oxley Act companies are required to disclose financial changes in the company on an urgent basis to all shareholders. All reported changes should be clear, concise, and show trends as applicable. In not reporting the lowered financial status of Excello, Mr. Reed violated section 409 of Sarbanes-Oxley Act well before the idea to advance post the sale of equipment.
* The financial reporting standard violated were not only in connection with Sarbanes-Oxley Act they were also in violation of the Generally Accepted Accounting Principles. The Generally Accepted Accounting Principles have four basic assumptions. These assumptions are that the company is separate from its owners and shareholders, will continue to exist for the foreseeable future, all values are reported in a constant monetary unit, and all transaction reported took place within the designated timeframe. Mr. Reed is contemplating violating the fourth assumption by reporting a sale that will take place outside the reporting year.
* The Generally Accepted Accounting Principles also have four basic principles.
* Cost
* Revenue
* Matching
* Disclosure
* The cost principle requires the reporting of actual costs and not market value of asset acquisition. The revenue principle requires that all revenue be reported when earned and not necessarily when funds are received. The matching principle requires that the expenses must be matched to the revenue. The disclosure principle requires the compiling and reporting of information pertinent to financial status of the company should be performed as long as the cost to do so is within reason. Mr. Reed violated the revenue principle by attempting to report a sale prior to it taking place. He also violated the disclosure principle in not reporting the dwindling finances of Excello.
* Ethical Issues
* The AICPA Code of Professional Conduct is an extensive set of ethical regulations for accountants. Within this code, the “Principles include (1) Responsibilities; (2) The Public Interest; (3) Integrity; (4) Objectivity and Independence; (5) Due Care; and (6) Scope and Nature of Services” (Mintz & Morris, 2011). Mr. Reed violated the AICPA...

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