TritonEnergy Business


Factorscomplicating Audit of Multinationals

Sincemultinational companies have branches in more than one geographicalcountry, accounting and auditing policies differences may causeserious problems (Journal of Accounting, 1986). InternationalAccounting Standard Committee (IASC) faces challenges of determiningand adopting certain standards used by different countries. Despitethe fact that a multinational is expected to report the consolidatedaccounts at the end of a financial year, auditors who may be hired toaudit the entire reports faces the difficulty of ascertaining thecorrectness of accounting policies and procedures compliance,especially from firms located in areas using different accountingprocedures from what they are familiar with. Again, the level ofexpected accuracy before qualification or giving an auditor’sopinion may be different from one geographical location to another(Journal of Accounting, 1986). Finally, complications may arise as aresult of mistrust between the internal auditors and the externalauditors. In most cases, one auditor is not sure of the level ofreliance they should place on the work of other auditors. Thesituation is further complicated by the fact that in multinationals,there are no relationships or room to learn about the credibility ofauditors in other countries directly other than through backgroundcheck of information which may be manipulated (Journal of Accounting,1986).

Responsibilityof an accountant if client violates law

Accordingto the American Institute of Public Accountants (2007), once anaccountant identifies a violation of the law he should evaluate themateriality of the act by weighing it in terms of both qualitativeand quantitative implications. If it turns out that the weight of theviolation will alter the position of the financial statement, theaccountant should conduct further research by analyzing carefullyother related documents as a violation in one area may be animportant lead to other serious malpractices in an organization.After the accountant satisfies that the violation actually occurred,he is required to prepare a report and present it to the managersstating facts with available evidence. He should then make a followup to ensure the violation of law is made good by the company takingcorrective measures. If the company does not take any action, theaccountant is required to report to the authorities.

Accountant’shierarchy and responsibility of detecting illegal acts

Theaccountant position to detect illegal acts of the client depends onthe nature of the company and the duties as prescribed in jobdescription. For a large firm that has a number of managers above theaccountant, detecting an illegality especially those carried outsidethe business may be complicated. Violations that an accountant candetect may include misappropriation of funds, expropriation of assetsand failure or prohibition to following standards of accounting inpreparation of financial statements (American Institute of CertifiedPublic Accountant, 2007). In a situation where the managers areinvolved in transactions that do not have any documentation, theaccountant cannot detect any malpractices as his work is to usesource documents, journals, and ledgers to prepare summarizedfinancial statements.

Theauditors impact on accountant’s role

Ifthe firm has internal auditors, the role of the accountant indetecting illegal acts changes significantly. Part of the reasoncould be due to that fact that internal auditors are mandated tocheck the accuracy of internal controls by carrying out compliancechecks and offering suggestions to management on the areas thatshould be improved. Furthermore, the management has a duty to makefull disclosure to auditors if they expect to get their opinion. TheAmerican Institute of Public Accountants (2007) indicate that if anaccountant does not get complete information to satisfy himself ofthe correctness and truthfulness of the records, he have a right towithhold his opinion or give a disclaimer of opinion. In this case, aconclusion can be reached that the hierarchy of an accountant doesnot affect the working of the auditor in any way.

Marwickreliance on the work of other auditors

Theauditing contract for Triton Energy identified Peat Marwick as theirsole auditor. As such, should the Marwick decide to sub-contractlocal companies in Indonesia and other Asian countries, the reportingduty remains with the mother company. Consequently, they will assumeresponsibility of the consequences and has to exercise due diligencebefore incorporating the reports of the subsidiary in their finalwork. The advantages of using the work of other auditors for Marwickis the fact that the company does not have to go throughcomplications that arise as a result of difference in accounting andreporting standards in different countries. However, if Peat Marwickcontract services of a local audit firm and are not satisfied beyondreasonable doubts that the work is reliable, the firm can issue aclean audit report and add a disclaimer regarding the part that theyare not certain about.


Costof producing gas and oils in foreign nations

Accordingto the case study, Triton’s cost of producing gas is more than justlicense and machinery acquisition. Exploration of possible mines isan expensive exercise and time consuming. The company had toestablish good relationships with government officials through whatappear to be irregular means. For instance, to maintain governmentprivileges in France, Lee had to establish very close ties with allpowerful energy regulatory government owned corporations official.Triton’s controller was irregularly sacked in 1989 after refusingto sign the 10-K registration statement citing the instances ofbribery and kickbacks that were involved in the process. In additionto this, the company had to pay heavy taxes which resulted incollusion with government officials to reduce the tax burden.

Effectsof foreign transactions on transfer price

Foreignoperations make transfer price of a commodity to go up when theproduct is sold in the domestic market (Akpojevwa, 2014). Theincrease in price is as a result of several factors which includeforeign taxes imposed on the country of origin, hidden operationalcost and costs associated to transfer of labor, capital among otherfactors. Geographic location may also increase the cost due totransport element. Cultural factors and difference in legalrequirements contributes to the price at which a product is valueddomestically even before it is transferred to other countries.Akpojevwa (2014) states that tax differences may also contribute tothe transfer price at which a product is subjected to. For example,if tax rate is higher in the host country than the country ofconsumption, the product may be transferred at a lower price toreduce tax liability. As a result, Triton diversification of oilexploration activities in different country was important in reducingtax liability by controlling the transfer price.


Specificcontrols that could deter illicit payments

Someof the measures that Triton could have implemented to reduceinstances of irregular payments is to have in place a system thatauthorizes payment after being counter signed by several officials.They can also invest in an internal control system that trackspayment against vouchers. In the long run, an internal control systemwill pay off by making it difficult for one person to effect payment.Strict disciplinary measures could also work to deter an employeewith intentions to implement illicit payments. Finally, Triton shouldmake it known to all parties that any payment effected must beaccompanied with relevant documentation that must be signed by thereceiver. This documentation can be used as evidence in case of courtcases litigation.

Multinationalcompanies implementing FCPA

Multinationals,in my opinion, should be on the forefront in implementing the FCPAprocedures in their auditing work. According to the case study, ithas appeared that most multinationals with origin from the UnitedStates have spoiled their reputation following cases of bribery andillicit kickbacks to foreign officials. The implication of this maybe lack of competitiveness in the future due to fear that UnitedStates firms are corrupt. To improve public image, the multinationalsshould support the United States government by incorporating in theiraudit such elements.

Payingof bribes by U.S. Multinationals

Differentcountries have distinct policies that regulate how business practicesare carried out. It is not uncommon to find a policy that prohibitscertain practices in one country being an acceptable exercise inanother country. As a result, U.S. corporations that conduct businessin other countries where corruption is almost legal have to evaluatethe term ‘corruption’ itself. If a certain practice is legal in acountry, it does not amount to corruption as we know it. In myopinion, multinationals should operate within the law of the countrythey are located. However, such companies should consult the expertsin FCPA to avoid being sued in local courts after having violatedlaws.


Triton’sforeign operation taxation as

Ifthe operations at Triton are organized as a branch, the mothercompany has the responsibility of reporting for all its branches. Inthat case, taxation will be charged on the headquarters which issupposed to account for the activities of all the branches. On theother hand, a foreign corporation has the right to report part or alltheir transactions separately from the parent although consolidationis still a requirement. Taxation of a foreign corporation is done inthe country of its operations. Consolidated profits are subject todouble tax relief which is the lower of foreign tax paid and domestictax that would be paid from such incomes if they were made locally.If the corporation is organized as branch of a foreign corporationtaxation is similar to that of a regular branch. The headquarters hasthe responsibility to report on all the branches.


Wehave seen above that branch accounts are reported by the parentcompany. Prices in all branches are set by the headquarters and assuch, each branch is a price receiver. Foreign Corporation, on theother hand, has some autonomy and may set prices depending on anumber of factors. However, the transfer price at which foreignproduced goods are received largely determines the price to be set. Abranch of a foreign corporation will receive price details from theparent company and make minimum changes to reflect the prevailingenvironment conditions.


Financialreporting standards

Theaccounting financial standards that would have been used by theIndonesian subsidiary in the 1980’s should have been those used bythe parent company. This would simplify the burden of reporting. Theprocedures for converting the accounts should put into considerationthe currency exchange rates at different levels. Most items in theincome statement should be converted based on the average for theyear while financial position item should be converted at the rate ofassets acquisition and closing balance rate. The most appropriateaccounting standard to use for the Indonesian subsidiary would be theInternational Accounting Standard for ease of comparison with theparent company and other related companies (U.S. Securities andExchange Commission, 2000)

Standardsfinancial auditing

IfTriton Energy Company had relied on an Indonesian CPA to audit itsaccounts, the firm would have to expect the auditor to use thestandards used in Indonesia in the 1980’s. However, if theIndonesian based CPA accountant had trained in U.S, Triton would haverequired the audit report to be prepared based on the U.S. standards.Finally, an Indonesian CPA firm conducting audit firm today will berequired to use the internationally recognized standard as set by IASboard for uniformity (international Standards on Auditing, 2015)


Fromthe case study involving and other reliablesources, it can be concluded that an accountant has a responsibilityto take action if he detects an irregularity or a violation of law bythe client. An accountant has ability to do this depending on thehierarchy of their position in the organization they work in.Additionally, an auditor’s role may affect the essence ofresponsibility of the accountant to report on a client who violateslaw. This may be explained by the realization that if the accountantconceals such details, the auditor will bring the whole account tolight during auditing exercise. Auditors who conduct an audit formultinationals with businesses in countries under differentaccounting and reporting standards experience challenges due to lackof uniformity. The international Accounting Standards has convenedmeetings where such issues are addressed, but unfortunately onlyminimum success has been realized due to unwillingness to adoptchanges by some organizations. The issue of corruption has alsoemerged conspicuously in Triton’s dealing where governmentofficials had to be bribed to endorse the company’s activity. In abid to deal with corruption cases in foreign countries, U.S.government passed the FCPA which has been sparingly implemented asmost American businessmen believe it makes the country uncompetitiveas other countries does not have such a law. Finally, the issue oftransfer prices has been covered in this work and how organization ofa multinational as branch, corporation or a corporation branch canaffect taxation and price of a commodity from foreign transactions.


Akpojevwa,A. (2014). TheEffects of International Transfer Pricing on Host Nations: AnOverview of Developing Nations.Retrieved 18 July 2016, from

AmericanInstitute of Certified Public Accountants, Inc.,.(2002). AU317 Illegal Acts by Clients.Retrieved 18 July 2016, from

InternationalStandards on Auditing (ISA),. (2015). InternationalStandards on Auditing (ISA) – Financial Stability 18 July 2016, from

Journalof Accountancy. (1986). Currentcomplexities cited in audits of multinationals – ProQuest.Retrieved 18 July 2016, from

TritonEnergy Case Study 3-5-1

U.S.Securities and Exchange Commission, (2000). InternationalAccounting Standards. Retrieved18 July 2016, from