An Ethical Question
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An Ethical Question
From an ethical point of view, I would advise not to register the company. Acquisition of another company is a process that requires a strategic evaluation of the two companies’ assets. The needs of each organization need to complement the others. The rule that has been created by the SEC is not mandatory but just a rule of thumb on how operations need to take place within the company in the acquisition and mergers process. Assets that are supposed to be acquired by the new company sum up to 7.8% of Acme. However, the regulation that guides how the acquisition will take place is based on assets that exceed 5%. The new company has met and satisfied the needs, but the rule is not compulsory. Therefore, making a decision not to be registered by the SEC will not be considered an offense. According to the Securities and Exchange Commission, the staff accounting bulletin can express their views appertaining to exclusive reliance on quantitative benchmarks that have been set (Securities and Exchange Commission, n.p). In most situations, the stalemate that the staff has created is considered and being inappropriate because they fall under the numerical threshold. The same problem is taking place in the acquisition process for the company. There is a threshold that has been set at 5%. Despite the organization meeting the assets requirement, the registration by the SEC will still be considered illegal and not appropriate. In preparing the company’s financial statement, the auditor will have to consider the 5% assets as a misstatement, and there is a high chance that it will not be incorporated in the tabulation. None of the items will need to be registered as a consolidated asset in the acquisition process either at the moment or in the future.
The rule of thumb that has been created aims and ensures that a procedure is designed to assist with preparing the financial statement. In a situation where the company’s registration to be acquired has been done by the SEC, it implies that the preparation of the economic states will have to be done separately. However, there is no main intention behind an acquisition or a merge since the audition will treat the two companies as a single entity. Registration of the business under the SEC will come with another os implication such as different tax filling increasing the acquisition cost. A fundamental rule of thumb under the assessing materiality is that the items under 5% of the number of assets that need to be acquired will be a crucial indicator of a misstatement or an omission (Securities and Exchange Commission, n.p). Therefore, even auditing the financial statement will be challenging to the auditor since the number of errors to be made will be on the rise. The use of numerical data such as the 5% is considered a numerical assumption under accounting laws (Securities and Exchange Commission, n.p). Hence if there is a deviation from the amount, the financial statement will not be material. In the same dimension and argument, it makes registration by the SEC to be counted as being inappropriate to the acquisition expected to take place. According to the FASB, a critical discussion presented is that materiality cannot be reduced to a numerical formula such as the percentage used in the case study (Financial Accounting Standards Board n.p). There are high chances of making mistakes in the reporting of the various financial statement.
The Sarbanes-Oxley act of 2002 provides the guideline to be followed in the auditing and reporting of the financial statement for both the private and publicly trading companies (Luthkevich, n.p). A critical element emphasized is the fair presentation and lack of misinterpretation in the auditing process and reporting. If there is registration of the acquired company by the SEC, there is a likelihood that the annual reports will have errors, especially that of omission. That is because its activities will be considered to be that of an independent enterprise. Filing a notice on two companies that have undergone an acquisition and separate entities is a big mistake and will negatively influence even the stakeholders. Their representation will not be the same since the management under registration is likely to be different. The liability of the mistakes that have been made is another critical consideration. From the provision of the Sarbanes-Oxley act of 2002, there is a need for the SEC to hold people accountable for errors that have been made in accounts reporting ((Luthkevich, n.p). In a registration situation, it will be hard to realize who needs to be held accountable for the wrong misinterpretation. There will be the creation of a blame game where each part or organization does not want to own up to the events that have negatively contributed to the outcomes. Therefore, it will be unethical to consider registering the company under the SEC while an acquisition is anticipated. The most effective approach to be considered is to merge the two organizations and treat them as a single entity in the financial reporting and accounting processes.
References
Financial Accounting Standards Board (FASB). (n.d.). Technical Agenda. Retrieved from Technical Agenda (fasb.org).
Luthkevich, B. (n.d.). Sarbanes-Oxley Act of 2002. https://searchcio.techtarget.com/definition/Sarbanes-Oxley-Act.
Securities and Exchange Commission. (n.d.). SEC Staff Accounting Bulletin: No. 99 – Materiality. https://www.sec.gov/interps/account/sab99.htm.
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