We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Legality and Ethicality of Corporate Governance Essay Sample

essay
  • Pages: 4
  • Word count: 862
  • Rewriting Possibility: 99% (excellent)
  • Category: ethics

Get Full Essay

Get access to this section to get all help you need with your essay and educational issues.

Get Access

Introduction of TOPIC

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. S

arbanes-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 favorable light.

Ethicality of case events

The ethicality in the events of this case need

s a closer look. . Even though the actions were not illegal, they were unethical. There was pressure

Sorry, but full essay samples are available only for registered users

Choose a Membership Plan
to achieve sales goals and maximize revenues and earnings before United Thermostatic Controls goes public. Frank Campbell, the director of the southern sales division, is worried about the effect of reporting these sales in the following year because it may effect his and other managers’ bonuses, and share of the profits.

Even though the customers do not want the items shipped yet, he initiates shipment and pressures the accounting department to record transaction in current year. His actions reflect a concern for his own position and do not reflect the best interest of the public. This causes a huge ethical dilemma for United Thermostatic Controls. Technically the transactions are not illegal, but the intent caused the ethical problems to occur. Wanting to manipulate the financial statements to help ensure the company’s statements look good is questionable at best. Contacting the customers and trying to obtain approval would have been a better course of action for him. This will also take away income from the next year.

Internal and external stakeholders

The activities in this case were not equitable to the internal and external stakeholders. The activities were not fair to these stakeholders, especially future investors who would believe the company has more income. Reporting these transactions in the current year gives the investors and other stakeholders an inaccurate picture of the financial health of the organization. Another problem is with the customers themselves. Shipping the items early or as a partial shipment may upset the customers. This could put the customers in a position to report the purchase at the end of the year, which reduces their income. Several stakeholders interest are affected by the decision to record the transactions, and the activities need to reflect their interests.

Next step

The next step is to inform the audit committee who can resolve any differences in management. Informing them is an appropriate course of action concerning corporate governance. Looking to an outside source will help resolve any issues of internal bias. The company and board of directors have a personal interest in the stock prices. The temptation to report the additional income to ensure high stock values will make external contact the best option. This will prevent any bias in regard to stock values or company bonuses.

Conclusion

In conclusion, the ethical dilemma that occurred with United Thermostatic Controls affected many stakeholders. The legal and ethical issues could cost the company investors, customers, and put them in jeopardy with the SEC. An important area to consider is Section 401 of the Sarbanes-Oxley Act. Information gets presented fairly in order for publicly traded companies to remain in compliance. Manipulating information for personal gain or favor is punishable by law, and should be avoided at all costs.

Reference
Mintz, S. M., & Morris, R. E. (2011). Ethical Obligations and Decision Making in Accounting (2nd ed.). New York, NY: McGraw-Hill/Irwin.

We can write a custom essay on

Legality and Ethicality of Corporate Governance Es ...
According to Your Specific Requirements.

Order an essay

You May Also Find These Documents Helpful

Business Ethics - International Trade Administration

As experts in business ethics, your expertise can be used to help breakdown a situation good or bad. In situations we can come in and erase the bad and replace with good or simple reinforce the good that is being done. In this case, we will be doing a lot of erasing for many reasons. This branch of the bank was not doing what it was supposed to in regards to protecting itself and following the country’s banking laws. “The actions cited included failing to put in effect measures to prevent money laundering, overcharging customers for financial derivative products and making loans that helped clients carry out a variety of improper deals, regulators said.” Acts like this are major unethical decisions that should never be made by employees of a bank. Such movements open up themselves as employees and the company to major back lash and trouble. All of that...

Ethical Issues in Business

Ethics is an area of study that deals with ideas about what is better and worse behavior. McDonald’s business is being governed by a clear code of ethics. Their staffs are committed and follow on its implementation. It is a promise to abide by the standards of business conduct. They promise to uphold integrity. Ethics is about our actions and decisions, Right vs. Wrong. The code of ethics of McDonald’s also pledges to resolve any private or public issues related to that of economic, political, social, financial and environmental problems (McDonald’s Corporation, 2006) Public ethics are what a person or a company claims or express publicly to others about its underlying values, intentions and motivations in a particular situation. Private ethics are the values, intentions and motivations of a person. Public and Private ethics may be the same, or they may be different. On the economic gains, McDonald’s has the...

Euthanasia: Ethics of euthanasia

The Ethics of Euthanasia Morality refers to the determination of right or wrong as upheld by a particular society or group of individuals. The contemporary moral issues related to the current problems that are of controversial nature and in which the community is evenly divided on the opinion they hold of right or wrong. Utilitarianism is one such concept in the field of normative ethics for the purposes of quantifying or justifying the moral standing of an issue within a community. Utilitarianism is a principle proposed by Jeremy Bentham and John Stuart Mill in the 18th century leading to an early 19th century (Hinman 34). The law implies that an action is right if a majority of the people affected by it derive benefits from the work while an action is wrong if it will hurt more people. The pillars of measuring utilitarianism are intensity, duration, certainty or uncertainty, propinquity,...

Popular Essays

logo

Emma Taylor

online

Hi there!
Would you like to get such a paper?
How about getting a customized one?