Legality and Ethicality of Corporate Governance

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Legality and Ethicality of Corporate Governance
Robert J. Thompson
ETH/376
July 8, 2013
Tammie Holland

Legality and Ethicality of Corporate Governance
Case 3-3 at the end of Chapter Three of Ethical Obligations and Decision Making in Accounting provides an example of how legal and ethical issues affect corporate governance. Examining the legality, Sarbanes-Oxley Act, and ethicality of the activities of this case will ensure the activities of United Thermostatic Controls are equitable to internal and external stakeholders. Corporate governance is in place, as proof by the internal auditor discovering the questionable transactions. Legal issues and laws

There does not appear to be any legal issues or laws pertaining to this case that are violations. United Thermostatic Controls did ship the items before the end of the year, so they are correct in reporting the sale during the current year. Whether or not the customer agreed to receive shipment does not have any legal ramifications. However, manipulating numbers to ensure the company looks favorably is illegal. Considering the company is about to go public, reporting these sales in this manner could mislead investors. The Sarbanes-Oxley Act is a federal law that applies to this case, and one in which publicly traded companies should pay close attention to. Sarbanes-Oxley Act

This law requires management to certify the accuracy of financial information. Manipulating financial statements to ensure meeting financial predictions is unethical and illegal. There are several important sections in this law, but the main one applying to this case is section 401. Section 401 requires “each financial statement filed with the SEC to reflect all material correcting adjustments that have been identified by the audit firm in accordance with GAAP and the rules and regulations of the commission” (Mintz & Morris, 2011, pg.285). GAAP procedures circumvented in this case portray United Thermostatic Controls in a...
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