Excello Commuminations

Fraudulent financial reporting is one form of corporate corruption and may involve the manipulation of the documents used to record accounting transactions, the misrepresentation of accounting events or transactions, or the intentional misapplication of Generally Accepted Accounting Principles (GAAP) (Crumbley, Heitger, and Smith, 2013). Examples of fraudulent schemes befitting of this category abound and usually involve financial statement items that have been misclassified, omitted, overstated, undervalued, or prematurely recognized. One case involving CEO Bill Smith of Moonstay

“ In order to prevent fraudulent financial reports and statements, the American Institute of Certified Public Accountants(AICPA) has created ethical standards” (Ethical standards in a financial statement, 2011). These standards aim to make financial professionals accountable for their accounting practices. This includes the integrity of financial reporting and ensuring financial reporting is done fairly and factually. Financial accountants and professionals should maintain professional integrity, objectivity, and independence to reduce the risk of resulting legal action, loss of profits, and a poor reputation if improper financial reporting is done (Ethical standards in a financial statement, 2011).

Using the limited information in the case, do the industry characteristics or the current revenue recognition policies encourage manipulation of revenues? If so, how could Wareham manipulate its earnings?

The second option the accounting team came up with was to transfer the product to Data Equipment by December 31 and agree that the customer could return it for a full refund after it arrives at Data Equipment’s warehouse. This option is very unethical. Essentially Excello wants Data Equipment to purchase this product and take delivery of this product prior to December 31, 2010 but will allow Data Equipment to return the product for a refund after the new year. This option seems to be set-up for failure. Excello wants to record this transaction so badly; they are willing to refund this purchase after the new year just to show an additional sale for 2010. This option puts Excello at risk to start 2011 in the black. Having a sale this large returned will be hard to recover from. This option does not violate the revenue recognition principle, but does violate section 401 of the SOX act. Unless the company discloses this information on the balance sheet, Excello would violate this section of the ACT. As for violating the AICPA code of conduct, this option is not part of an ethical practice. It is similar to a salesperson buying a product themselves to attain something in return, and returning the product the next

In conjunction with the SOX act, the accounting team needs to adhere to GAAP regulations. One of the most important regulations Excello should be concerned with is revenue recognition principle. The GAAP standard for revenue recognition principle determines the specific conditions under which income becomes realized as revenue (“Investopedia”, 2012). Recording the sale to Data Equipment prior to shipment puts Excello in violation of GAAP guidelines. Although, GAAP consists of common standards and procedures a company uses to impose consistency in financial reporting for an investors benefit, the guidelines can also help prove financial inconsistencies that, if needed, can be used against a company accused of any violations regarding SEC regulations. A violation of GAAP standards will be committed if Excello records the sale in 2010 knowing it was falsely inflate that years overall income.

You are the Chief Operations Officer a midsized window frame, aluminum siding, and tire recycling equipment manufacturing company located in the northeastern United States. Your company is organized along product lines, and you directly supervise the three people in charge of each of these product lines. The plants for these products are geographically dispersed over a two state area; the nearest plant is located only ten minutes away but the farthest plant is a two hour drive from the company headquarters. Although your company has been financially sound over the past ten years, over the past four months your company has been experiencing a serious cash

This study aims to understand what effect has an ethical framework in accounting. In particular, we examine the influence of ethics on earnings management, financial reporting, and external accounting. Today, the commercial environment reveals the unethical behavior of management and accountants through the manipulation of accounting records to boost the company’s stock price, falsified financial statements to mislead investors, failure of auditors to correct errors and omissions due to client’s pressure and personal material interests.

1. The Sales Rep. A sales representative for a struggling computer supply firm has a chance to close a multimillion-dollar deal for an office system to be installed over a two-year period. The machines for the first delivery are in the company’s warehouse, but the remainder would have to be ordered from the manufacturer. Because the manufacturer is having difficulty meeting the heavy demand for the popular model, the sales representative is not sure that the subsequent deliveries can be made on time. Any delay in converting to the new system would be costly to the customer; however, the blame could be placed on the manufacturer. Should the sales representative close the deal without advising the customer

Creating misleading financial reports to draw in less attention from the financial community is deemed unethical. It is improper to report advertising costs as an

Using the existing method, Midwest Office Products was not adequately determining the profitability of each order based on the true costs of both the delivery mechanism (freight vs. truck delivery) and the late payments (interest of 1% per month). As a result, certain orders (like #2 above) appear profitable until the late payments and delivery costs are taken into account. These costs cut out MOP’s entire margin and left them in the red on order #2 which was too small to cover the delivery costs.

Management’s alleged scheme for inflating revenue is that in 2001, when the company was not able to meet their sales and revenue goals, they would record sales on the books as soon as products left the warehouse. So if ClearOne shipped a lot of products during the last week of the quarter (or swept the floor as they call it), they would be able to meet their revenue projections. So basically, they manipulated their revenue by placing significantly large orders during the last few days of the quarter. The CEO then had an agreement with other companies or third party

1. Is it unethical for a company to intentionally understate its earnings? Why or why not?

For instance, a fashion designer may receive a request to make a wedding gown with various features for a bride. This dress would normally take two weeks to make, but the bride needs it within a week no matter the costs of it. Now, the dress designer though, has other commitments, which the factory is obligated to meet, would decide that the variable cost is mouthwatering enough to let go. Considering the tight schedule of its employees, the company accepts the job and put in an extra shift to complete the job. The one-time special order does not affect the numerous orders of customers so the fashion company accepts or decides to make the wedding dress. On the other hand, if this order becomes a regular order, the company, again must make a decision to accept or not to accept. Overall, there are two essential factors the fashion designer should contemplate on; first, to see if there are employees who are idle to handle the job and secondly, the company should contemplate if this one-time special order is on a short-run pricing, which may or may not impact the company going forward. This is an example of a special order

Revenue management (RM) is the art and science of selling the right product to the right customer at the right time for the right price, through a combination of inventory controls and pricing (Cross 1997). The practice has first immerged from the airline industry and rapidly grew to its status today as major business practice widely used in different industries, such as Walt Disney, Hotel Chain, Car Rental and supporting consulting companies. RM relies on optimization models that take the demand forecast, risk factors, and capacity limitations as inputs, and output the optimal pricing strategies and quantities to be sold in a specific period, in order to maximize the company’s revenue. These decisions involve lots of uncertainty and risks especially for products with a perishable nature. Decision makers always have to choose between two options: sell the product as early as possible at lower price and guarantee a revenue from the product before it expires, or encounter the risks of delaying the selling process for the last moment before expiration date and rely on customers who are willing to pay high prices for the sake of getting the product. RM models are the tools that assist in such decisions, they are able to first determine the time period where market conditions are most favorable, and set up the right prices that are not too low leading to loss of profits and not too high leading to loss of customers.

1. The Sales Rep. A sales representative for a struggling computer supply firm has a chance to close a multimillion-dollar deal for an office system to be installed over a two-year period. The machines for the first delivery are in the company’s warehouse, but the remainder would have to be ordered from the manufacturer. Because the manufacturer is having difficulty meeting the heavy demand for the popular model, the sales representative is not sure that the subsequent deliveries can be made on time. Any delay in converting to the new system would be costly to the customer; however, the blame could be placed on the manufacturer. Should the sales representative close the deal without advising the customer