Excello Telecommunications Case Summary

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 first was to ship to an offsite warehouse owned by Excello by December 31, 2010 and ship it again on the requested January 11, 2011 date. The second was to transfer the product to the buyer by December 31 and offer a full refund if retuned to Excello. The third option was to offer the buyer a ten percent discount to take the product by December 31, 2010. Of the three options the best alternative seems to be offering a discount if the customer takes the product by December 31, 2010. Giving discounts to a buyer is not an uncommon practice and is not an illegal practice that is defined by the GAAP or the SEC. If the product is delivered to the buyer by the December 31, 2010 deadline the sale will be legitimate and the $1.2 million dollars can be appropriately recorded in 2010. Transferring the product to the buyer before January in order to make the earnings estimate and procure the bonuses and stock options is not the most ethical reason but does not appear to be