Analysis of Financial Reporting at Russell Company: Ethics and Law

This report analyzes the financial reporting practices of the Russell Company, focusing on the ethical and legal implications of manipulating financial data. The company, facing declining sales and a drop in stock price, attempts to artificially inflate profits by accruing revenues and deferring expenses, actions deemed unethical and illegal. The report examines the president's request and the controller's actions, highlighting violations of GAAP and the potential for misleading stakeholders. It discusses the unethical practice of dating adjustment entries and the manipulation of financial information. The analysis concludes that such practices are both unethical and illegal, potentially misleading stakeholders, and can be detected by internal and external auditors if they perform their duties correctly. The report also references relevant literature on accounting ethics, revenue accrual, and earnings management.

Russell Company –
Accounting Principles
SUBMITTED BY: -

Abstract
 The Russell Company’s sell declined this year which result the less
profit that going to affect the share price of the company.
 To avoid this, president asks the controller to accrue all possible
revenues and defer the expenses.
 For this controller passes the adjustment entries on 17th of Jan by
dating them 31st of December.
 This is unethical and illegal process of financial reporting.

Introduction
The sales of Russell Company is declining and the profit is too which affect
the market price of the stock in the market. To save its market price of
stocks President decided to accrue every possible revenue and defers
expenses. In this contest, this presentation analyse the following points of
the Russell company: -
 Stakeholders
 Ethical consideration
 Illegality

Stakeholders of the company
 Shareholders
 Employees
 Government
 Investors

Ethical consideration of president’s
request
The president’s request void the ethical consideration because the ethical
consideration includes the following points: -
 All company books and records are to be complete, accurate, reliable
and follow the GAAP.
 Business expense reports must be documented and recorded
accurately as per the guidelines.
 The CEO and other have specific legal obligations to ensure the
company that the company provides full, fair, timely and accurate
financial reports.

Ethical consideration of dating
adjustment entries
Zoe passes the adjustment entries on 17th of January but dated them as
31st December this void the ethical consideration regarding the
adjustment entries dates as this includes the following points: -
 The information in the books of the company must be fair, true and
accurate.
 The entry related to the revenue must be passed after the occurred or
compilation of selling process.
 The expenses of the year must be charged on the same year.
 The entries related to revenue and expenses must be passed in their
relevant dates.

Is accrue revenue and defer
expenses of Zoe is Ethical?
No, the accrue revenue and defer expenses of Zoe is not ethical because
it voided the ethical consideration of the GAAP. Those are: -
 Manipulation of Data
 Inaccurate information
 Not following the guidelines

Is accrue revenue and defer
expenses of Zoe is illegal?
Yes, Zoe’s accounting treatment for accrue revenue and defer expenses is
illegal in the following grounds: -
 Manipulation of data
 Unethical
 Window dressing
 Misleading the stakeholders

Who can discover Zoe’s accrued
revenue and deferred expenses?
Zoe’s accrued revenue and deferred expenses can be discover by the
followings: -
 Internal Auditor
 External Auditor

Conclusion
The is to be conclude that the Russell Company manipulates it financial
information to show the higher profit than the actual to maintain its
market price of stocks. Hence, this is an unethical and illegal accounting
practice which can miss guide the stakeholders. While, this can be
discover by the auditor of the firm if they properly follow their duties.

Bibliography
Duska, R. F., Duska, B. S., & Kury, K. W. (2018). Accounting ethics. Wiley-
Blackwell.
Jackson, M. P. (2017). Revenue Accrual Quality as an Indicator of Financial
Statement Fraud.
Loy, T. R. (2016). Stakeholder Influence on Earnings Management: Ethical
Considerations and Potential Avenues. Corporate Ownership and
Control, 13.
Markmann, A., & Ghani, W. (2019). Business Ethics and Financial
Reporting: Earnings Management During Periods of Economic
Recessions. Journal of Forensic and Investigative Accounting, 11(1).

Thank You