Essay about Cooking the Books

1046 Words Dec 27th, 2015 5 Pages
Cooking the Books
ACC 201
Abstract
The key to the article “Cooking the Books” is to cover the business ethics of an accounting manager ordering one of his accountants to falsifying a company’s accounting ledger. The Generally Accepted Accounting Principle of expense recognition was not followed. The accounting manager was attempting to commit fraud for personal gain, he does this by manipulating the books to show higher revenue in order to meet the volume for management bonus. The accounting manager also created a hostile working environment by threating his accountant’s job security if he didn’t comply with his orders. The Sarbanes-Oxley Act will also be explored to see if there was a violation due to the unethical behavior of the
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Under the revenue recognition principle it requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied. In a merchandising company, the performance obligation is generally satisfied when the goods transfer from the seller to the buyer, which will be in the next year.
Consequences. If the Chief Executive Officer is aware of these actions and he/she signs off on the company’s financial statements then he/she has just violated the Sarbanes-Oxley Act because this is clearly unethical behavior and a fraudulent financial activity. The company could face severe penalties if they are convicted of violating the act. Effective financial reporting depends on sound ethical behavior and the company’s behavior is suspect. The company is not faithfully representing itself in a credible manner. Faithful representation means that information accurately depicts what really happened. To provide a faithful representation, information must be complete (nothing important has been omitted), neutral (is not biased toward one position or another), and free from error (Weygandt, 2014 p.132).
The management personnel as well as all the accountants that participated in this act are also committing fraud. A fraud is a dishonest act by an employee that results in personal benefit to the employee at a cost to the employer (Weygandt, 2014 p.334).
Possible solutions. With all of the

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