Legality & Ethicality of Financial Accounting

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Legality and Ethicality of Financial Reporting Accounting professionals consider standard practices of accounting and board of accountancy rules when creating ethical standards. Accountants also consider state and federal laws. Ethics and the law works hand-in-hand therefore should be on the minds of those considering the commission of fraud. The Chief Financial Officer (CFO) of Excello, Terry Reed, was considering doing such by posting a $2.1 million transaction to raise year-end earnings. Terry Reed, CFO of Excello, committed the unethical practices in this case. Reed had considered the $2.1 million transaction to collect the earnings from a sale that was not to occur until January 2011. By posting the transaction in December 2010,…show more content…
One of three things can happen in the Excello case. First, Reed may transfer the merchandise to an off-site location and record the sale at the end of 2010 because there is no violation of Excello’s shipping rules and GAAP standards (Mintz, 2011). Second, Reed can transfer the merchandise to the customer and promise a refund to the customer’s account after 2010 report filing (Mintz, 2011). Like the first, this option is also unethical. Besides manipulating the financial reports, these choices post a risk for Excello that the sale may never fruition. Both options allow the customer to return the goods after Excello posts the revenue, thus violating the GAAP’s revenue recognition principle. Third, Excello could offer the customer a 10% discount to purchase the merchandise before December 31, 2010. This option being the most ethical decision because no fraudulent activity occurs. The employees who are acting unethically in this case are Terry Reed, CFO, and Marty Fuller, controller of Excello. Fuller is covering the bases by calling meetings with the accounting staff and requesting that the merchandise sell and post according to the GAAP standards. Fuller is being unethical by trying to get around the GAAP and AICPA codes. Reed is unethical because he requests the accounting department to find ways around the rules to increase the 2010 earnings by posting a sales transaction before the revenue was
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