Triton Energy Ltd. / Case 3.4 Brief Description: 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 1960’s Bill 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 rough-and-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 oilproducing countries, particularly those over looked by “Big Oil”. During Lee’s tenure with Triton, the company launched exploration ventures in Argentina, Australia, Canada, Colombia, France, Indonesia, Malaysia, New Zealand and Thailand. Although adept at finding oil, Triton’s small size hampered the company’s efforts to exploit oil and gas properties. Major oil firms, large metropolitan banks, and other wellheeled investors often refused to participate in the development of promising oil and gas properties discovered by Triton. To compensate for Triton’s limited access to deeppocketed financiers, Lee resorted to less conventional strategies to achieve the firm’s financial objectives. Lee and Triton established close relationships with various foreign governments and agencies. Triton’s policy of working closely with government agencies and bureaucrats landed the company in trouble with the U.S authorities during the 1990’s. Charges that Triton bribed foreign officials to obtain favorable treatment from governmental agencies led to the investigation of the company’s, 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 Act of1977, including the accounting and internal control stipulations of that federal statue. Facts and Related Statement of Auditing Standards: Periodically two Indonesian audit teams periodically examined Triton Indonesia’s accounting and tax records. The audit revealed that the unit owned approximately $618,000 of additional taxes. Of this total $385,000 involved taxes levied by Pertamina auditors, while the remaining $233,000 were taxes assessed by BPKP auditors. Roland Siouffi an employee of Triton arranged to pay $160,000 to two key members of the Pertamina audit team to eliminate the additional tax assessment of $385,000 and arranged with the auditor from BPKP to pay him $20,000 to reduce the $233,000 tax bill to $155,000. The nature of these payments violated auditing standards:

• Statement of Auditing Standards 54 Illegal Acts by Clients This states that the auditor considers laws and regulations that are generally recognized by auditors to have a direct and material effect on the determination of financial statement amounts. • Statement of Auditing Standard No. 69, The Meaning of “Present Fairly in Conformity With Generally Accepted Accounting Principles” in the Independent Auditor’s Report • SAS 99, Consideration of Fraud in a Financial Statement Audit •
SAS 1, Responsibilities and Functions of the Independent Auditor,

Which states that “the auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. This section establishes standards and provides guidance to auditors in fulfilling that responsibility, as it relates to fraud, in an audit of financial statements conducted in accordance with generally accepted auditing standards (GAAS). Statement of Auditing Standard No. 107, Audit Risk and Materiality in Conducting an Audit which states that "an illegal payment of an otherwise immaterial amount could be material if there is a reasonable possibility that it could lead to a material contingent liability or a material loss of revenue." Issues: This case involves the focus on the provisions of the foreign corrupt practices, act, auditor independence, misrepresentation of financials, and poor internal

controls

Discussion and Analysis: Each year, additional U.S. companies attempt to establish footholds in emerging markets. Funneling unlawful payments to officials of foreign countries is often the most effective method of breaking down entry barriers to those markets. The growing sophistication of illicit foreign payment schemes complicates the SEC’s efforts to more rigorously enforce the FCPA. In fact critics of the FCPA suggest that it is practically unenforceable except in the most blatant cases. Many corporations’ executives have lobbied against the enforcement of the FCPA. These executives maintain that the federal law places U.S. multinational companies at a significant competitive disadvantage relative to other multinational firms. A member of Presidents Clintons administration supported this point of view when he observed that the U>S. is the only country that has “criminalized bribery of foreign officials.” Conclusion and Recommendations: Bill Lee was never directly implicated in the Indonesian payments scandal and retired as Triton’s Energy CEO in January 1993 after leading the Dallas based oil and gas exploration firm through three turbulent decades. The SEC sanctioned the Triton executives involved in that Scandal. All of those executives subsequently resigned their positions with the company. A few years later, in the summer of 2001, Triton Energy’s tumultuous history as an independent firm ended when Amerada Hess purchased the company for a reported $2.7 billion. I would recommend that the company establish the following guidelines in the future:

1. Have a code of conduct across the business relating to bribes. With a zero tolerance that would result in immediate termination. 2. Have a strong internal audit function and audit committee, and act to rectify any relevant internal control weaknesses identified and reported to the board by external auditors. 3. Require the accounting staff to maintain adequate records of the sums of money received and expended by the company, identifying the matters in respect of which the receipt and expenditure takes place. 4. Prohibit staff from making off-the-books transactions or keeping off-the-books accounts. 5. Have adequate standards to ensure the independence of external auditors which permits them to provide an objective assessment of company accounts, financial statements and internal controls. 6. Require the auditor who discovers indications of a possible illegal act of bribery to report this discovery to management and, as appropriate, to corporate monitoring bodies. 7. Require the auditor to report indications of a possible illegal act of bribery to competent authorities. 8. Created monitoring bodies of, independent of management, such as audit committees of boards of directors or of supervisory boards. 9. Provide channels for communication by and protection for, persons not willing to violate professional standards or ethics under instructions or pressure from hierarchical superiors Relation to the week’s learning outcomes: This case relates to learning outcomes regarding the audit implications of client control policies and procedures as well as the factors that complicate the audits of multinational firms.

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