Legality and Ethicality of Financial Reporting

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As the case of Excello Telecommunications is reviewed it can be seen that the CFO was facing financial difficulties due to increased competition. In 2010 the earnings estimate was not going to be met and this would have affected the bonuses, stock options, and the share prices of the Excello stocks. After discovering a large sale that was pending until the shipment could be made for the following year the CFO asked the company controller to find a way to capitalize on the sale in the current year so that the budget shortfall could be met. The only way to accomplish the task was to work around the rules of accounting. The intent to find a way around the rules presents possible legal issues. This case can be evaluated by the Sarbanes-Oxley Act and the AICPA and we look at the financial reporting standards and ethics involved. The CFO of Excello, Terry Reed, discovered that the company made a sale of $1.2 million dollars on December 20, 2010 but it could not be recorded until January 11, 2011 because the purchasing company’s warehouse capacity could not accommodate the equipment. After this discovery Reed determined that the monetary shortfall for 2010 could be solved if the company could record the sale for 2010 instead of in 2011. The Controller, Marty Fuller, for the company approached the accounting department and there were three possible ways found to work around the dilemma. The first was to transfer the product to an off-site warehouse that was owned by Excello by December 31 and hold it there until January 11 when it could be shipped to the purchaser. The second would be to transfer the product to the purchaser by December 31 and offer a full refund upon return. The third option is to offer a ten percent discount to the purchaser if they accept the product by December 31. In reviewing this case it can be seen that there are legal issues that are involved. The controller of the company is fully aware of the rules of accounting and is willing to work around...