Ethical Implications in the Excello Case

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Ethical and Legal Implications of Excello Telecommunications Cheryl Moore
ETH/376
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 Excello. The financial crunch has provided Mr. Reed with an urgency to log the sale in the current year. However, logging the sale without shipping the material is a breach in protocol and financial regulations. Legal Issues

The accounting staff was tasked to find a way to log the sale of equipment in the current business year instead of the next year. The staff did recognize that the Generally Accepted Accounting Principles should not be violated. However, they still contemplated violating the Sarbanes-Oxley Act by reporting sales that did not occur and going against reported financial controls. Not to mention the potential misleading financial information reported to the shareholders and the share price becoming falsely inflated. The Sarbanes-Oxley Act was instilled in 2002. In this act, three sections speak directly to the illegality of what Mr. Reed wants to do with the $1.2 million of equipment sold, but not to be billed until the following year. In section 302 of Sarbanes-Oxley Act the financial statements must not contain any untrue statements, omission of material information, or be considered misleading ("Sarbanes-Oxley Compliance ", 2003). By reporting the sale of equipment before it took place, Excello would be misstating income and misleading shareholders to the...
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