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 ...view middle of the document...
Tony discusses the issue with Sam Lorenzo, the director of sales, who informs him that he sees no problem with the transactions. Tony now has to make a decision, should he keep silent, report the matter to the audit committee or tell his boss, Walter Hayward who is the CFO and also on the board of directors.
Corporate governance refers to systems and sets of checks and balances that are designed to ensure that while pursuing the achievement of its goals, a company adheres to the rules of the regulatory, social, and market environments. These systems would include designation of responsibilities, a clearly defined decision making process, internal and external audits and audit committees. Healthy corporate governance leads to ethical practices within the organization, supports accurate and transparent financial statements, and helps to prevent fraud. Agencies and legal processes that serve as an “overseers” in regulating corporate governance can only be effective when there are repercussions for not following the rules and regulations.
This case involved a number of unethical acts. In order to make sales look better, Frank Campbell is pushing the accounting department to record the two sales in 2010. In both cases, not only was the customer not consulted but they actually communicated their desire to take delivery of the merchandise in 2011. The matter became even more unethical when Frank went to Sam Lorenzo who informs him that top management would support the way the sales are being recorded because they are interested in reflecting higher sales on their financial statements. Management is only interested in keeping up the stock price and their bonuses and is not being honest with the public or the shareholders. They are clearly not in compliance with GAAP as they are breaching the principles of revenue recognition, consistency, and accrual basis accounting.
As a CIA and CPA, Tony Cupertino is faced with the legal and ethical responsibilities which have been established by the AICPA Code of Conduct. These guidelines were developed to establish principles of professionalism, honesty, and quality performance within the accounting industry. Tony must uphold these values. The public relies on information provided by the CPA. ...