Legality and Ethicality of Corporate Governance Eth 376 Week 4

The United Thermostatic Controls Company is a publicly owned company that manufactures and markets residential and commercial thermostats. As a publicly owned corporation, United Thermostatic Controls mutual stocks be listed and traded on the New York Stock Exchange. Frank Campbell is the director of the Southern sales division; however the Southern sales regional economics getting worse, the pressure to achieve sales revenue targets has created stressful and possibly unethical situations by Campbell.

Campbell has pressure because he may not meet budgeted revenues for the fourth quarter, he researched purchase orders supposed to receive during late November and early December. With those purchase orders, Campbell decided to manufacture and ship orders prior to the end of the year to have the sales revenue contribute toward the fourth quarter. This action by Campbell resulted in sales revenue to be 18. 6% increase over the actual sales revenue for the third quarter of the year and exceeded the budgeted amount by $80,000.

This prompted the internal audit staff to question the appropriateness of the recorded revenue of $150,000 on two shipments made by the Southern division in the fourth quarter of the year. In the further investigation revealed that the customers did not want the delivery of product until the earliest of February 2011. Also one customer did not want partial shipment; however that is what they had received. This paper will address the legality of the activities based on federal, state, and local laws. Additionally, the criteria that the Sarbanes-Oxley act would apply to this case.

Furthermore, a determination on whether or not the activities were equitable to internal and external stakeholders and what would be the best next step decision. Financial Statements are designed to define the health and well-being of a company. It is necessary that the information on the financial statements is accurate. The Sarbanes-Oxley (SOX) Act of 2002 was a law that was passed because of a several unethical companies who decided that they could cook the books with the financial statement reports to benefit from the companies.

It was apparent to the auditors that what they found was a situation that needed further investigation. The information already coming to light, did not follow suit with the concentration of what the SOX Act was established for. The Statement of Auditing Standards requires the internal audit staff which, has responsibilities to the company in which he works for. The auditors went to Cupertino which, is the director of the internal auditing department as well as a licensed Certified Public Accountant (CPA) and also holds the certified internal auditor (CIA) designator.

Cupertino approached Campbell regarding the transactions and which was told that upper management would support the actions of what Mr. Campbell did in the last two months, because of the pressure, it exceed budgeted revenue, nevertheless it would not affect the stock prices. The ethicality issues of this case are simple. The transactions were done during the fourth quarter but at the cost of not doing proper business with the customers.

The customers did not receive their product how they requested it (full shipment of product versus partial) and delivered product when they did not want them yet due to room or space. The customer’s wishes were ignored due to the financial state of the end of the fiscal year. Campbell wanted the company to look better than what was actual. The other ethical issue is the Mr. Cupertino would like to take his concerns further to Walter Hayward, who is the chief financial officer (CFO), who is also a member of the board of directors, or to take his concerns to the audit committee.

Cupertino understands that the majority of the members of the board, including those on the audit committee, which includes the ties into the company and members of top management. This causes a decision that he has to make even though he knows that there is financial performance pressures, and he may not get the support he seeks. Cupertino is serious about his responsibilities and obligations for coordinating the work of the internal auditing department and the external auditors. Plus, he has responsibility to the public of having accurate financial statements.

The internal and external stakeholders could be potentially negatively affected because of what Campbell decided to do with the transactions, just to have enough or over enough revenue in sales. The production and shipment of the transactions and pushing them out to the customer prior to their desired receipt date theoretically will cause loss of future orders from the customer, in turn losing future revenues. Additionally, possibly losing prospect customers from the negative feedback from the customers who did not receive moral customer service that they deserved.

Both the internal and external stakeholders will be affected by loss of business because it will be lose in revenue and could ruin the company. It was clear from the beginning of this case that Campbell and Lorenzo acted unethically and put the company at risk for future investigation and losses of revenue. It was apparent that they were thinking short-term of the goals than having a long-term goals for the company. Campbell was only thinking about what numbers they needed but he was not taking any consideration of the public interest for the company financial state.

Cupertino was put into a position that he believed that he would not be able to do anything about because of the members which are on the board and the top management. It seems that Cupertino is an ethical accountant and passionate about his responsibilities and obligations and should discuss with the external auditors regarding his findings and allow the external auditors to further their investigations regarding the practices of the company.