This ethics case is centered on Sports World, Inc. which is a large retail chain that sells sporting goods. There are a few unethical situations presented in the case that will be discussed throughout this paper. The first one is when Sports World recognizes $15 million of earnings prematurely when it should have been recorded as $15 million of unearned revenue because the shipping company failed to ship $15 million dollars of merchandise before the months end. Another unethical situation is when Sports World reverses $2 million of advertising expense by setting up an asset account called prepaid advertising that will be expensed in January 2014 and February 2014. Finally, another situation ...view middle of the document...
The Board of Directors is relevant to this case because they have the power to fire the officers of the company and lately the company has been doing poorly especially compared to its competition. So, the satisfaction of the Board of Directors was probably a big motivating factor for the officers’ wrongful accounting decisions with the advertising campaign and the handling of the shipping error. The dissatisfaction of the Board of Directors essentially “pushed” the officers of the company to wrongful decisions because of the pressure to meet their expectations of earnings for the year.
• The Officers: there were three officers involved in this ethics case: the CEO, the CFO, and the COO. Each of these officers is relevant to this case because they each had key involvement with the two unethical accounting decisions. The officers have not been doing a good job of leading the company which can be derived from the dissatisfaction of the Board of Directors and the stockholders; the poor performance compared to competition; and the poor earnings, profitability, and growth of the company. All of these factors probably created a weight on the shoulders of the officers which probably pushed them to make poor decisions to ensure earnings expectations were met.
• The Bank: the bank is relevant to this ethics case because a major factor leading to the first unethical accounting decision was because the CFO wanted to make sure that the company passed all its bank loan covenant tests. Assuming the accountant still chooses to create the prepaid advertising account then Sports World will pass the bank loan covenant test and continue to do business with the bank. If Sports World violated any of the loan covenants with the bank then the bank could have called off the loan.
• Customers: the customers are stakeholders of Sports World and relevant to this ethics case because they are directly related to the two poor ethical decisions by the officers. The customers involved in the two decisions were the large TV and radio companies that were advertised through and the several colleges which sports equipment was sold to over the holidays.
• Employees: the employees of the company are relevant to the ethics case because if the unethical accounting decisions are discovered by the SEC and the company is forced to close then the employees of Sports World would be jobless.
• AICPA Code: Article III, paragraph #1: “Service and the public trust should not be subordinated to personal gain and advantage.” Article III essentially states that members of a company should be responsible, have integrity, and do what is right. This Article of the AICPA is relevant to this ethics case because the decision to create a prepaid advertising account even though Sports World had incurred an advertising expense lacks responsibility and integrity. This decision has breached the trust of the public.
• AICPA Code: Article IV, Rule 101: “Independence precludes relationships...