Abstract
As the case study revealed, United Thermostatic Controls has an ethical dilemma it is considering. United Thermostatic Controls is contemplating finagling sales number in order to meet the Southern Division’s budget. A member of this organization has pressured the accounting department to disregard the wishes of its customers, and deliver product before the agreed upon date so that the revenue can be recorded in the current fiscal year. Before any decision is made, all of the rules and regulations in place to guide accountants should be considered, as well as the local, state, and federal laws in place.
Introduction
United thermostatic Controls are faced with falling short of the projected figure for the current fiscal year. Frank Campbell, the Director so Sales for the Southern Region is attempting to manipulate the delivery of product in order to pad his region’s revenue figures. This is unethical in several ways. Aside from going against the specific wishes of their customers regarding delivery dates, these acts are wrong and selfish. The biggest motivating factor for manipulating the revenue before the end of the current fiscal year is the amount of compensation and bonuses that will be realized if the revenue goals are met.
Legal Issues Involved
There are several laws, and regulations in place that should be adhered to by everyone, especially accounting professionals. There are several sets of rules and regulations that are in place to protect the public, as well as to protect accounting professionals some of the laws that accountants must comply with are the Sarbanes-Oxley Act of 2002, the AICPA Code of Professional Conduct, and Generally Accepted Accounting Principles (GAAP).
There are local, state, and federal laws that may come into play. The Sarbanes-Oxley Act is a set of guidelines that originated, and was put into place at the Federal Government level. Any decision made by United Thermostatic Controls must remain within federal compliance. United Thermostatic Controls must also take into consideration any local or state laws that may also effect the decision making process.
Sarbanes-Oxley Act
The Sarbanes-Oxley Act is in place to provide guidance in the financial reporting process. The transactions that United Thermostatic Controls is manipulating are in violation with several sections of the Sarbanes-Oxley Act. There are specific sections within the Sarbanes-Oxley Act that deal specifically with which criteria corporations are expected to follow. Specifically, sections 302, and 401. Both of these sections address financial reporting by corporations.
Section 302 of the Sarbanes-Oxley Act addresses the expectation, and responsibilities of corporate financial reporting. Section 401 addresses reports that are released periodically, and the disclosures that must accompany the reports. Ultimately, it is the responsibility of an organization’s upper management, and accounting staff to follow the rules, and regulations set forth within the Sarbanes-Oxley Act, and other guiding rules and regulations.
Ethicality of Activities
The ethicality of the activities that are taking place at United Thermostatic Controls would benefit from some improvement. What Frank Campbell is attempting to do is unethical. Although his s=actions may make business sense, accounting professionals should know better. Revenue is not to be recorded until the service has been completed fully.
The instructions from its clients were to deliver the products early in the following fiscal year. By accelerating the delivery of services, United Thermostatic Controls is “shoving the product” down the throats of its customers. Because of this, customers must now make arrangements to store product that arrived months early. Frank Campbell is not only putting United Thermostatic Controls in jeopardy, he is also completely disregarding the most important aspect of any business, its customers.
Equitable to Internal and External Stakeholders
The actions taking place are equitable to internal stakeholders, more so that for external stakeholders. The actions are taking place to begin with because of internal stakeholders worrying about their own stock options, and bonuses. Internal stakeholders are so concerned with not meeting revenue goals that they are willing to finagle the books, and potentially upset customers. Internal stakeholders are attempting to cut corners in order to look better for its stakeholders, both internal as well as external. But the real benefit belongs to the internal stakeholders who will directly benefit from these unethical actions.
Next Steps
The next best step for United Thermostatic Controls to take is to suck it up, remain honest and ethical and acknowledge that goals were not met. This is much better that lying to themselves, as well as to the shareholders. Granted, upper management will miss out on certain performance based bonuses, but that is absolutely the price to pay. Perhaps the goals in place were unrealistic, or not enough consideration was given to the decking economic climate. At the end of the day, remaining ethical and transparent is the most important factor of any successful organization.
Conclusion
United Thermostatic Controls is in the middle of a very unethical situation regarding the reporting revenue at the end of its fiscal year. The manner in which the corporation should proceed is the most transparent and most ethical option. In this situation, the correct option is to recognize the revue as it should be in the next fiscal year. There should never be a price put on the ethical reputation of an organization. In this case, by attempting to recognize revenue inappropriately for the sake of receiving a performance bonus, the ethical reputation of the organization was put in jeopardy.
The price of risking the ethical reputation of United Thermostatic Controls is the amount of the performance bonuses that would be issue. Internal stakeholders should never be that selfish in any instance, much less when acting on behalf of an organization.
