EC3: Russell Company Is A Pesticide Manufacturer's Sales ✓ Solved
EC3: Russell Company is a pesticide manufacturer. Its sales
EC3: Russell Company is a pesticide manufacturer. Its sales declined greatly this year due to legislation outlawing several of Russell’s chemical pesticides. In the coming year, Russell will have environmentally safe and competitive chemicals to replace the discontinued products and sales next year are expected to greatly exceed prior years. The decline appears to be a one-year aberration. The company president urged the controller, Zoe Baas, to accrue every possible revenue and defer as many expenses as possible to avoid a large dip in current-year profits and a stock-price drop. Zoe dated the adjusting entries December 31 though she recorded them January 17 and complied with the president's request.
Respond thoroughly to the following questions in a PowerPoint presentation: 1. Who are the stakeholders? 2. What are the ethical considerations of (a) the president’s request and (b) Zoe dating the adjusting entries December 31? 3. Can Zoe accrue revenues, defer expenses, and still be ethical? 4. Can Zoe’s accrued revenues and deferred expenses be illegal? 5. Who can discover Zoe’s accrued revenues and deferred expenses? Prepare a Microsoft PowerPoint presentation answering the questions, include at least one source and a reference slide following APA guidelines, include a title slide, an abstract slide with a concise thesis statement, answers to the outlined questions, a conclusion slide, and speaker notes for each slide.
Paper For Above Instructions
Slide 1 — Title Slide
Title: Ethical and Financial Reporting Considerations — The Russell Company Case
Speaker Notes:
Introduce the EC3 Russell Company case: regulatory loss of pesticide lines caused a one-year sales decline; management pressure to manipulate year-end adjusting entries; Zoe dated entries December 31 though recorded January 17. Purpose: analyze stakeholders, ethics, legality, discoverability, and produce recommendations grounded in accounting standards and professional ethics (Weygandt et al., 2018; AICPA, 2014).
Slide 2 — Abstract (Thesis)
Thesis: While timing choices in accrual accounting can be legitimate, deliberately accruing revenues or deferring expenses to misstate a period’s results or backdate entries undermines accounting principles, breaches ethical responsibilities, and risks legal exposure; proper application of GAAP, internal control, and professional ethics provides both a path for lawful recognition and safeguards against manipulation.
Speaker Notes:
The thesis ties accounting mechanics (revenues, expenses, adjusting entries) to ethical obligations. We'll examine whether Zoe’s actions can be justified under GAAP (ASC 606), professional codes (AICPA, IESBA), and internal control frameworks (COSO), and who could detect improper treatment (auditors, regulators, internal controls) (FASB, 2014; COSO, 2013).
Slide 3 — Stakeholders
- Shareholders and potential acquirers
- Board of directors and management
- Employees (including Zoe)
- Customers and suppliers
- Auditors (external and internal)
- Regulators (SEC) and standard-setters (FASB)
- Creditors and rating agencies
- The public and environment (given pesticide context)
Speaker Notes:
Each stakeholder group depends on reliable financial reporting for decisions. Misstated earnings can harm investors, damage market integrity, and risk regulatory enforcement (Healy & Wahlen, 1999; SEC, 1999).
Slide 4 — Ethical Considerations: (a) President’s Request
Key ethical issues: pressure to manipulate financial results, conflict between management self-interest and fiduciary duty, potential encouragement of earnings management and fraudulent reporting.
Speaker Notes:
The president’s instruction to “accrue every possible revenue and defer expenses” uses aggressive accounting for a non-recurring operational shortfall, risking violations of faithful representation and neutrality under GAAP. Professional ethics require integrity, objectivity, and compliance with laws and standards (AICPA, 2014; IESBA, 2018).
Slide 5 — Ethical Considerations: (b) Zoe Dating Entries December 31
Key ethical issues: backdating entries misrepresents the timing of recognition, violates recordkeeping principles, and may breach independence and documentation rules; it also obscures audit trails.
Speaker Notes:
Backdating adjusting entries to an earlier period to affect reported results is misleading. Even if the amounts are supportable, the date must reflect when the economic event or adjustment relates to the period; altering dates undermines internal control and can be considered falsification (PCAOB, 2013).
Slide 6 — Can Zoe Accrue Revenues and Defer Expenses Ethically?
Yes — but only when recognition criteria are legitimately met and supported by documentation. Accrual accounting allows timing judgment, but judgments must follow revenue recognition guidance (ASC 606) and expense matching principles.
Speaker Notes:
Ethical accruals require evidence of realizable revenue (contractual rights, delivery, persuasive evidence) and that expense deferral is consistent with matching and conservatism (FASB, 2014; Weygandt et al., 2018). Aggressive or speculative accruals made solely to manipulate reported earnings are unethical (Healy & Wahlen, 1999).
Slide 7 — Can These Actions Be Illegal?
Yes. Improper accruals, deliberate backdating, and misstatements can violate securities laws, GAAP, and criminal statutes if intended to deceive investors or regulators. The SEC enforces against fraudulent financial reporting; auditors can also report misstatements (SEC, 1999; PCAOB, 2013).
Speaker Notes:
Material misstatements or intentional falsification can lead to enforcement, restatements, and legal liability for the company and responsible individuals. Even reckless or negligent departures from GAAP can attract sanctions (Healy & Wahlen, 1999; Dechow et al., 1995).
Slide 8 — Who Can Discover Improper Accruals/Deferrals?
- External auditors during substantive testing and internal control reviews
- Internal audit and finance-team review processes
- Regulators (SEC) via filings and investigations
- Whistleblowers (employees) and audit committees
- Analysts and investors through unusual ratios, cash-flow anomalies, or forensic tests
Speaker Notes:
Auditors perform cut-off tests, corroborating documentation, and analytic procedures to detect improper timing (PCAOB, 2013). Internal controls (COSO) and strong governance (audit committee oversight) are primary preventive and detective mechanisms (COSO, 2013).
Slide 9 — Recommendations and Conclusion
Recommendations: (1) Zoe should refuse instructions that would violate GAAP or professional ethics and escalate to the audit committee or board if pressured; (2) Ensure full documentation for any legitimate accruals and accurate dating; (3) Strengthen internal controls and whistleblower channels; (4) Seek external audit counsel if unsure.
Speaker Notes:
Conclude that ethical accounting requires balancing professional obligations against management pressure. Proper application of ASC 606 and internal control frameworks enables legitimate timing choices; intentional manipulation is unethical and potentially illegal (AICPA, 2014; FASB, 2014).
Practical Slide Notes & APA Citation Use
Throughout the presentation, cite authoritative standards and professional codes in slide notes (e.g., Weygandt et al., 2018; FASB, 2014; AICPA, 2014). Use the notes area to provide formal citations and supporting facts so the slides remain uncluttered.
Speaker Notes:
Ensure recorded narration is clear, professional, and follows the logical flow: introduction, case facts, analysis, recommendations, conclusion. Include references slide using APA 6th/7th edition formatting as directed.
References
- American Institute of Certified Public Accountants. (2014). AICPA Code of Professional Conduct. AICPA. Retrieved from https://www.aicpa.org
- Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2013). Internal Control — Integrated Framework. COSO.
- Dechow, P.M., Sloan, R.G., & Sweeney, A.P. (1995). Detecting earnings management. The Accounting Review, 70(2), 193–225.
- FASB. (2014). Accounting Standards Codification Topic 606: Revenue from Contracts with Customers. Financial Accounting Standards Board.
- Healy, P.M., & Wahlen, J.M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365–383.
- PCAOB. (2013). AS 2201: An Audit of Internal Control Over Financial Reporting That Is Integrated with an Audit of Financial Statements. Public Company Accounting Oversight Board.
- Securities and Exchange Commission. (1999). Staff Accounting Bulletin No. 99: Materiality. U.S. SEC. Retrieved from https://www.sec.gov
- Weygandt, J.J., Kimmel, P.D., & Kieso, D.E. (2018). Accounting Principles (13th ed.). John Wiley & Sons.
- International Ethics Standards Board for Accountants (IESBA). (2018). Handbook of the Code of Ethics for Professional Accountants. IESBA.
- PwC. (2018). Revenue Recognition — A Practical Guide to ASC 606. PricewaterhouseCoopers. Retrieved from https://www.pwc.com