Legality & Ethicality of Financial Accounting Essay

931 Words Apr 28th, 2012 4 Pages
Legality and Ethicality of Financial Reporting

Accounting professionals consider standard practices of accounting and board of accountancy rules when creating ethical standards. Accountants also consider state and federal laws. Ethics and the law works hand-in-hand therefore should be on the minds of those considering the commission of fraud. The Chief Financial Officer (CFO) of Excello, Terry Reed, was considering doing such by posting a $2.1 million transaction to raise year-end earnings.
Terry Reed, CFO of Excello, committed the unethical practices in this case. Reed had considered the $2.1 million transaction to collect the earnings from a sale that was not to occur until January 2011. By posting the transaction in December 2010,
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Section 308 of SOX allows reimbursement to investors should they lose money because the CFO and CEO filed inaccurate financial statements. Section 307 provides criminal penalties should any Excello employees defraud the shareholders (Mintz, 2011).
The United States adheres to the GAAP guidelines for reporting standards under the requirements of the GAAS (generally accepted accounting standards). If Excello reports the increased income in 2010, the company violates the revenue recognition principle. The GAAP principle that Excello faithfully presents financial information means Excello may not report income to boost earnings. The financial reports must report actual transactions without misleading information.
Certified Public Accountants (CPA) adhere to ethical codes instituted by the AICPA. The AICPA code includes standards such as the code of ethics and professional guidelines. CPAs must act integrally to meet responsibilities to the public with the public defined as anyone affected by Excello’s financial statements, according to the Public Interest Principle Code. The AICPA, like SOX, provides disciplinary action for CPAs in violation. If the CEO and CFO of Excello file fraudulent statements, the CPAs who review or audit the documents must report any inaccuracies. Any CPA who fails to report any unethical practices is risking disciplinary sanction. In Excello’s case, if Marty Fuller, controller, decides not to perform the functions requested by

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