Yra Dessa T. Diansay August 8, 2013 Novah Mae B.

Samar

BSA-4

CASE STUDY: TRITON ENERGY LTD.

SUMMARY

The auditing case investigated involved Triton Energy Ltd., the successor of Triton Energy Corporation which was founded in 1962 by L.R. Wiley. In the early 1960sBill Lee joined Triton and was promoted to chief executive officer (CEO) in 1966. Under Lee, Triton competed in the rough-and-tumble business of oil and gas exploration by employing a roughand-tumble business strategy. Lee recognized that the large domestic oil firms in the United States had already identified the prime drilling sites in this country. So Lee decided that Triton should focus its exploration efforts in other oil-producing countries, particularly those over looked by Big Oil. During Lees tenure with Triton, the company launched exploration ventures in Argentina, Australia, Canada, Columbia, France, Indonesia, Malaysia, New Zealand and Thailand.

Although adept at finding oil, Tritons small size hampered the companys efforts to exploit oil and gas properties. Major oil firms, large metropolitan banks, and other well-heeled investors often refused to participate in the development of promising oil and gas properties discovered by Triton. To compensate for Tritons limited access to deeppocketed financiers, Lee resorted to less conventional strategies to achieve the firms financial objectives. Lee and Triton established close relationships with various foreign governments and agencies. Tritons policy of working closely with government agencies and bureaucrats landed the company in trouble with the U.S authorities during the1990s. Charges that Triton bribed foreign officials to obtain favourable treatment from governmental agencies led to the investigation of the companys, overseas operations by the U.S. Justice Department and the Securities and Exchange Commission

(SEC).These investigations centered on alleged violations of the Foreign Corrupt Practices Actof1977, including the accounting and internal control stipulations of that federal statue.

QUESTIONS:

1. What responsibility, if any, does an accountant of a public company have when he or she discovers that the company has violated a law? How does the accountants position on the companys employment hierarchy affect that responsibility, if at all? What responsibility does an auditor of a public company have if he or she discovers illegal acts by the client? Does the auditors position on his or her firms employment hierarchy affect this responsibility?

Once an accountant uncovers a violation committed by a company, he is responsible for disclosing such fact to the higher level of management. In this way, top level executives would be aware of such violation committed by the company. If this action of disclosure does not result to resolution or has been given no attention, then the accountant must now consult and disclose such fact to concerned authorities such as SEC.

Basically, the accountants position has been entitled to that kind of responsibility simply because his job allows him to be physically exposed and hands-on to actual process of transactions, making him/her a witness to such violation of law. However, this responsibility can be affected by his position in the company. Since an accountant is under the control of a management in which obedience is a must, then, theres a tendency that he could be influenced to practice such wrongdoings and could no longer raise his objections. With this, responsibility would be neglected and professionalism would be impaired.

In the side of an auditor, he must first practice the attitude of professional skepticism upon dealing with the audit of financial statements of his client. If it happens that he has discovered such violation, he must approach the top level management to discuss his findings. If the top level management does not make an action to resolve the problem, then, the auditor should communicate the concerned authorities such as SEC to disclose his report documenting all his findings about the wrongdoings of employees and misstatements in financial statements that had resulted to commission of violation of law.

Regarding the auditors responsibility, I believe that it can be affected by his position on his firms employment hierarchy. If, for instance, the auditors rank belongs to category in which knowledge and experience are high enough to commit and conceal fraudulent acts and provided that they work with limited supervision, then theres a high possibility that he would take the chance of committing fraudulent acts that would benefit both him and the client in financial terms. With this, we can tell that responsibility would be sacrificed, and independence would be impaired if auditors continue to prioritize personal interests.

2. If the citizens of certain foreign countries believe that the payment of bribes is an acceptable business practice, is it appropriate for U.S. companies to challenge that belief when doing business in those countries? Defend your answer.

Yes, I believe it is appropriate to challenge foreign countries belief regarding bribes even when doing business with them. This is because payment of bribes, by nature, is not an acceptable business practice. In fact, it must be prohibited because its effects materially affect the whole trade in business. Of course, as business people, we encourage a fair competition in the market. We just dont sell our products to earn profit but we also test our ability to sell in a fair competition under pressure for the survival of our business. To challenge foreign countries regarding in this belief is not about

contradicting them that may lead to cutting off business relationships with them. Instead, it is about correcting their belief and inviting them to a healthier competition that would result to improving business relationships and successful business ventures.

3. If a company employs a high-risk business strategy, does that necessarily increase the inherent risk and control risk components of audit risk for the company? Explain.

Auditors must determine risks when working with clients. It is necessary to increase the inherent and control risk while assessing this level of risk. You ignore whether the client has internal controls in place in order to help mitigate the inherent risk. You consider the strength of the internal controls when assessing the clients control risk. Your job assessing inherent risk is to evaluate how susceptible the financial statement assertions are to material misstatement given the nature of the clients business. High risk, rapid, expiring patents, state of the economy and availability of financing are factors that can increase inherent risk.

4. Does an audit firm of a multinational company have a responsibility to apply audit procedures intended to determine whether the client has complied with the FCPA? Defend your answer.

The responsibility for the prevention and detection of noncompliance with laws and regulations rests with the management. The management must monitor legal requirements and must have an appropriate internal control. However, the firms auditor has also the responsibility to recognize noncompliance, if such is present, which may materially affect the financial statements. In recognizing, then he must apply audit procedures. If the auditor thinks, according to his/her professional judgement, that noncompliance to FCPA (Foreign Corrupt Practices Act of 1997) MATERIALLY affects the financial statements of his client, and then he must obtain evidences in order to express an opinion free from material misstatements.

5. Identify specific control activities that Triton Energy could have implemented for Triton Indonesia and its other foreign subsidiaries to minimize the likelihood of illegal payments to government officials. Would these control activities have been cost-effective?

Control activities are policies and procedures that help ensure that management directives are carried out. As in the case of Triton Energy, their objective is to expand operations to foreign lands and to build relationships towards the government of that particular land. To think of bribery, in situations like building relationships, may be the least action a person in charge could do. The management could have thought of that. To decrease the likelihood of illegal payments, the senior management of Triton Energy must have a strict information processing in which authorization of transactions must be done, checking of its accuracy and completeness. This must be accompanied with the proper segregation of duties in order to reduce opportunities for collusion and concealment. These procedures wouldnt damage the budget of the company that much. Time may be the greatest opponent for the authorization and checking, but its benefit would surely exceed its cost.

6. Identify the key factors that complicate the audit of a multinational company.

Being a multinational company already complicates the situation. The company need not just to comply with laws and regulations of the country they are mainly situated but also to the laws and regulations being implemented in a particular country where they are having businesses. Another complication is the variations in the audit reports of companies in different countries. These are mainly due to the particular auditing standards used in preparing those reports. For example, some companies use local auditing standards, whereas others use International Standards of Auditing (ISAs), or U.S. auditing standards. Some audit reports are prepared on the basis of more than one set of audit standards.

Other major variations in aspects of external auditing across countries include the audit environment and regulation of auditing.

The cultural value orientation of a particular country can have an impact on the audit environment in that country. For example, the perception of auditor independence and audit judgment can be affected by culture. The audit environment of a country is also heavily influenced by its accounting infrastructure, which includes preparers and users of information, information intermediaries, and mechanisms for regulating accounting information.

Approaches taken to regulate auditing in different countries range from those that leave the task largely in the hands of the profession, such as in Anglo-American countries, to those that rely heavily on government, such as in China.