Week 3: Individual Legality and Ethicality of Corporate Governance
Alisha J. Simental
March 6, 2014
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 ...view middle of the document...
The only are that may cross some legal activities is when they shipped a partial shipment to Bilco Corporations, because the company already stated they would not accept partial orders. In this situation, the corporation is going to denied the shipment but it would end up coming back after the end of the year. In this case, the standard of accounting and SOX act is broken in order to included revenue. After breaking it down, the reported revenue from those two cases misleads investors, shareholders, and the public in believing that the company made their target revenue instead of actually being under.
The Sarbanes-Oxley Act was bought about due to the Enron and WorldCom scandals in an attempt to protect shareholders, investors, and the public from fraudulent accounting activities.(www.soxlaw.com) In section 401, it states that financial statements are" required to be accurate and presented in a manner that does not contain incorrect statements."(www.soxlaw.com) When the company decided to ship the product early, even knowing that one or both will be shipped back, it is not presenting correct information to the public. They are reporting the revenue to make sure the company hits the target even though the financial information is inaccurate. In section 302, it basically covers that signing officers have to review all financial reports to make sure all material does not contain misleading information. The company clearly broke this section because the upper management knew and pushed the accounting department to produce misleading information in order to hit their target. The upper management even signed off on those documents knowing the financial information contained those issues.
In this case, the ethical activities of what is right and wrong may not be so clear or cut and dry. Some individuals may believe that the company did nothing ethically wrong because the revenue was recorded when the shipment went out , before the end of the year. Therefore, because no laws or regulations were actually broken and the company did not input the revenue before the shipment went out how could it be wrong. While, I agree that in this case that would present an actually good argument justifying the misleading information it does not make the activity ethical. Ethics, to me, is doing the right thing even if it means not hitting the target sales. The company believes they found a loophole in which makes it acceptable to perform those accounting activities. The first problem, is the upper management putting pressure on the accounting team in order to find a way to increase revenue. Management should not force any staff to go against laws, regulations, or...