Ethics Case Study Revenue Recognition and Management Override AR Manufacturing (ARM) is a manufacturing company with approximately 2,000 employees which is publicly-traded on NASDAQ stock exchange. With annual revenue of $ 700 million and a public float of approximately $400 million, ARM is classified as an accelerated filer by the SEC ARM is required to file 10-Qs 40 days following its fiscal quarter end and its 10-K 75 days following its fiscal year end. As a public registrant, ARM is subject to the requirements of the Sarbanes-Oxley Act of 2002 (SOX). As an accounting intern, you have enjoyed the opportunity to work at ARM but are also looking forward to returning to the University of to continue your accounting education. During the internship, you initially worked in the revenue group where you learned about the revenue accounting processes and the importance of contractual terms and conditions. In the second half of the internship, you were moved to the financial reporting group and have gained significant exposure to and understanding of the company's accounting policies and the GAAP on which the company's accounting and reporting is based. The financial reporting group has a number of people who are CPAs including the Director. The Directors of both the Revenue Accounting and Financial Reporting departments have communicated their appreciation of your work and that you were the type of student they would like to hire when you graduate Your time at ARM is coming to an end in another week, and you have become aware of an accounting issue. You know from your intermediate Accounting class that revenue should not be recognized until goods or services are delivered to a customer. The company's fiscal year end ended two days ago and in the review of specific transactions during the analysis of Sales Revenue, you have discovered that revenue has been recognized on a sales contract that ships to Ethics Case Study the customer fo.b. destination. When you ask your former manager in Revenue Accounting about the transaction and when shipping occurred, he tells you it is still on the loading dock because the freight company is 7 days late in arriving and has not picked up the delivery. The Revenue Manager tells you since it was ready to go before the end of the fiscal year and if the delivery had been picked up as scheduled, it would have been delivered during the prior fiscal year. As a result, you are told that a decision was made to recognize the revenue in the prior fiscal year. You have also hcard in Financial Reporting that ARM management have been very focused on getting transactions completed before the end of the prior fiscal year. The Reporting Manager said Management's drivers were concerns about meeting investment analysts' revenue and earnings forecasts for the prior fiscal year and not meeting the performance goals that could impact bonuses for all of ARM's employees. You really would like to have an opportunity to join ARM on graduation and know having the support of the Revenue Accounting and Financial Reporting Directors would be key to achieving this goal. As an intem, you are a temporary employee and subject to ARM's Code of Ethics. However, you are concerned if you raise the accounting issue it could negatively impact the relationships you developed during your internship. You also know the auditors will ask about cutoff issues and review end of period transactions as part of their audit inquiries. You believe the issue will most likely be discovered during this process. Given the accounting issue you have become aware, what are you going to do? 2 Ethics Case Study Requirements 1. Prepare a professional presentation (paper) that summarizes your analyses and conclusions following the Deliverable instructions. 2. Use the seven-step model shown below as the basis of your analysis and decision-making process in responding to these requirements. AAA MODEL OF ETHICAL DECISION-MAKING Code of Ethics for Professional Accountants Joint Guidance Note: Relevant facts Determine the facts Ethical issues involved List the significant stakeholders and define the ethical issues Fundamental principles related to the matter in Identify the applicable fundamental principles, question and any other rules or values Established internal procedures Alternative courses of action Specify the alternative courses of action Compare the alternatives and see if a clear decision emerges Weigh the consequences of cach alternative Assess the consequences of each alternative course of action course of action Take course of action consistent with the Make a decision fundamental principles Source: APESB (2006) and CPA Australia and ICAA (2002) 3. Any other materials accessed through your research, 4. Document any assumptions you make based on the case fact situation or other knowledge 5. Complete and submit the Case Study Evaluation Form to receive credit for this assignment. Ethics Case Study Summary This assignment requires you to read, analyze, and state your observations of and conclusion(s) based on a fact situation presented in an assigned short case study : Due Date Introduction Situations may arise in an individual's personal or professional life that require the individual to assess the situation and determine the proper or appropriate course of action by the individual. At times, the situation(s) may pose a potential ethical dilemma. Deliverable Using the AAA Model for Ethical Decision Making perform an analysis of the assigned short case study and write an up to 5-page paper (double-spaced, New Time Roman 12 font, one-inch margins). The paper should fully incorporate the seven (7) step model presented in the Requirements as well as document any assumptions made. Your paper should include a cover page, proper citations, and a reference page. The cover page and reference page do not count against the 5 page limit on this paper. As a professional presentation, your paper should include a cover page providing title and appropriate identifiers, appropriate citations in the paper, and a reference page(s). Your writing should be in grammatically correct full sentences with proper spelling and punctuation. Do not simply copy the information from the case study or other sources you may use, but provide yenuer own commentary supporting your analysis of the ethical situation presented. Use clear, concise. professional writing that is easy to read and comprehend. Grading! The assignment will be graded based on the quality and appropriateness of the form of analysis of the case study, the linkage of the analysis to the stated conclusion (1.c., does the analysis support the conclusions) reached), logic applied, and writing quality (i... use of language, spelling, style elements) Assignment points are based on the presentation content (50%) and analysis (50%) which are weighted equally. However, the instructor will also consider strengths and deficiencies in the presentation content and analysis (i.c., content and analysis are linked) in the determination of points. If your paper is missing the cover page or Reference(s) you will have a 2.5 percent of the assignment points deducted for each missing item Note: You must complete and submit the Case Study Evaluation Form to receive credit for this assignment The Grading section describes the rubric being used to evaluate the overall assignment. While grading is focused on the presentation of content and style elements, it also considers deficiencies following assignment instructions and formatting 4 Ethics Case Study Revenue Recognition and Management Override AR Manufacturing (ARM) is a manufacturing company with approximately 2,000 employees which is publicly-traded on NASDAQ stock exchange. With annual revenue of $ 700 million and a public float of approximately $400 million, ARM is classified as an accelerated filer by the SEC ARM is required to file 10-Qs 40 days following its fiscal quarter end and its 10-K 75 days following its fiscal year end. As a public registrant, ARM is subject to the requirements of the Sarbanes-Oxley Act of 2002 (SOX). As an accounting intern, you have enjoyed the opportunity to work at ARM but are also looking forward to returning to the University of to continue your accounting education. During the internship, you initially worked in the revenue group where you learned about the revenue accounting processes and the importance of contractual terms and conditions. In the second half of the internship, you were moved to the financial reporting group and have gained significant exposure to and understanding of the company's accounting policies and the GAAP on which the company's accounting and reporting is based. The financial reporting group has a number of people who are CPAs including the Director. The Directors of both the Revenue Accounting and Financial Reporting departments have communicated their appreciation of your work and that you were the type of student they would like to hire when you graduate Your time at ARM is coming to an end in another week, and you have become aware of an accounting issue. You know from your intermediate Accounting class that revenue should not be recognized until goods or services are delivered to a customer. The company's fiscal year end ended two days ago and in the review of specific transactions during the analysis of Sales Revenue, you have discovered that revenue has been recognized on a sales contract that ships to Ethics Case Study the customer fo.b. destination. When you ask your former manager in Revenue Accounting about the transaction and when shipping occurred, he tells you it is still on the loading dock because the freight company is 7 days late in arriving and has not picked up the delivery. The Revenue Manager tells you since it was ready to go before the end of the fiscal year and if the delivery had been picked up as scheduled, it would have been delivered during the prior fiscal year. As a result, you are told that a decision was made to recognize the revenue in the prior fiscal year. You have also hcard in Financial Reporting that ARM management have been very focused on getting transactions completed before the end of the prior fiscal year. The Reporting Manager said Management's drivers were concerns about meeting investment analysts' revenue and earnings forecasts for the prior fiscal year and not meeting the performance goals that could impact bonuses for all of ARM's employees. You really would like to have an opportunity to join ARM on graduation and know having the support of the Revenue Accounting and Financial Reporting Directors would be key to achieving this goal. As an intem, you are a temporary employee and subject to ARM's Code of Ethics. However, you are concerned if you raise the accounting issue it could negatively impact the relationships you developed during your internship. You also know the auditors will ask about cutoff issues and review end of period transactions as part of their audit inquiries. You believe the issue will most likely be discovered during this process. Given the accounting issue you have become aware, what are you going to do? 2 Ethics Case Study Requirements 1. Prepare a professional presentation (paper) that summarizes your analyses and conclusions following the Deliverable instructions. 2. Use the seven-step model shown below as the basis of your analysis and decision-making process in responding to these requirements. AAA MODEL OF ETHICAL DECISION-MAKING Code of Ethics for Professional Accountants Joint Guidance Note: Relevant facts Determine the facts Ethical issues involved List the significant stakeholders and define the ethical issues Fundamental principles related to the matter in Identify the applicable fundamental principles, question and any other rules or values Established internal procedures Alternative courses of action Specify the alternative courses of action Compare the alternatives and see if a clear decision emerges Weigh the consequences of cach alternative Assess the consequences of each alternative course of action course of action Take course of action consistent with the Make a decision fundamental principles Source: APESB (2006) and CPA Australia and ICAA (2002) 3. Any other materials accessed through your research, 4. Document any assumptions you make based on the case fact situation or other knowledge 5. Complete and submit the Case Study Evaluation Form to receive credit for this assignment. Ethics Case Study Summary This assignment requires you to read, analyze, and state your observations of and conclusion(s) based on a fact situation presented in an assigned short case study : Due Date Introduction Situations may arise in an individual's personal or professional life that require the individual to assess the situation and determine the proper or appropriate course of action by the individual. At times, the situation(s) may pose a potential ethical dilemma. Deliverable Using the AAA Model for Ethical Decision Making perform an analysis of the assigned short case study and write an up to 5-page paper (double-spaced, New Time Roman 12 font, one-inch margins). The paper should fully incorporate the seven (7) step model presented in the Requirements as well as document any assumptions made. Your paper should include a cover page, proper citations, and a reference page. The cover page and reference page do not count against the 5 page limit on this paper. As a professional presentation, your paper should include a cover page providing title and appropriate identifiers, appropriate citations in the paper, and a reference page(s). Your writing should be in grammatically correct full sentences with proper spelling and punctuation. Do not simply copy the information from the case study or other sources you may use, but provide yenuer own commentary supporting your analysis of the ethical situation presented. Use clear, concise. professional writing that is easy to read and comprehend. Grading! The assignment will be graded based on the quality and appropriateness of the form of analysis of the case study, the linkage of the analysis to the stated conclusion (1.c., does the analysis support the conclusions) reached), logic applied, and writing quality (i... use of language, spelling, style elements) Assignment points are based on the presentation content (50%) and analysis (50%) which are weighted equally. However, the instructor will also consider strengths and deficiencies in the presentation content and analysis (i.c., content and analysis are linked) in the determination of points. If your paper is missing the cover page or Reference(s) you will have a 2.5 percent of the assignment points deducted for each missing item Note: You must complete and submit the Case Study Evaluation Form to receive credit for this assignment The Grading section describes the rubric being used to evaluate the overall assignment. While grading is focused on the presentation of content and style elements, it also considers deficiencies following assignment instructions and formatting 4