TritonEnergy Limited

of relevant facts

Foundedin Dallas in 1962, Triton Energy is one of the largest oil productionand exploration companies. Triton has its operations in severalcountries. It experienced infighting, fraud allegations, high-riskventures and near bankruptcy on its journey to success. The companysearched the globe for oil and gas between the 1960s and early 1970s(Knapp, 2009). It centered its activities on overseas exploration.

Tritonfaced allegations of falsifying its accounts in the 1980s. Tritonofficials confirmed that the company paid off Indonesian authority,and they employed “creative” accounting methods to hide thepayoffs. Employees acknowledged they occasionally overstatedexpenses, altered bookkeeping entries and also bribed auditors(Knapp, 2009).

Between1966 and the mid-1990 Bill Lee was Triton’s Chief ExecutiveOfficer. Lee employed unconventional techniques to attain Tritons’financial objectives. He formed an alliance with the Frenchstate-owned oil firm to access the state agency that regulated theFrench petroleum industry (Knapp, 2009). It is his managementtechnique that resulted in a culture of fraud in the organization.

Tritonoperation in Indonesia came under scrutiny. Jimmy Janacek, who servedas Triton’s controller between 1981 and 1989, took the company tocourt for wrongful termination. He claimed Triton fired him fordeclining to violate federal and state laws during financialreporting (Knapp, 2009). He won and received $ 124 million.

1989saw the internal audit director filling a memorandum revealingwrongdoings by employees and Triton Indonesia officials. The internalaudit manager stated that the subsidiary’s accounting records wereso misleading that one could not distinguish a real transaction froma fake one. Instead of taking action, the Triton executives orderedthe destruction of the memorandum. A former Triton accountant alsodiscovered internal control weaknesses. According to him, keyaccounting duties were not segregated (Knapp, 2009). That made itpossible to carry out and hide the fraud. His superiors also admittedto him that Triton bought Indonesia auditors responsible forreviewing Tritons tax records.

PeatMarwick was Tritons audit firm from 1969 to about 1989. It was onlyin 1981 that it learned of the memorandum from the company’s formerinternal audit director (Knapp, 2009). Peat requested for this memo.Triton went ahead to prepare a second memo that left out details ofquestionable activities that were in the initial memorandum andpassed it to Peat as if it were the original.

Triton’sIndonesian worker actively engaged in corruption. Roland Siouffi, aresident of Indonesia (hired as a liaison officer by Triton) met withPertamina (the Indonesian state-owned Oil Company) audit team andbribed then to lower Triton’s tax liability. Although themanagement claimed to have no knowledge of wrongful payoffs, they didreceive briefs by Indonesian officers about illicit payoffs madethrough Siouffi. They knew of the falsified accounting documentsconcealing the illegal payments (Knapp, 2009). Triton managementfailed to instruct Triton Indonesia to stop these payments.

In1997, the Security Exchange Commission acted on a four-yearinvestigation it undertook on Triton Indonesia. It issued a series ofenforcement releases. Triton and its executives faced charges ofviolation of the anti-bribery, control and accounting requirements ofthe FCPA. All were guilty. The case acted as a message to corporatemanagers. It also emphasized the responsibilities management has whenit comes to foreign payment (Knapp, 2009). The message was, companiesshould not pay bribes just because they do not get caught. Bill Leedistanced himself from the scandals and retiring in January 1993.


Thefollowing are the key factors that complicate the audit of amultinational company:

  1. Cultural difference and language barriers. While auditing a multinational, one must be careful when visiting various branches so as to mitigate cultural barriers (Patel, 2006). Also, an auditor may have to employ the services of a translator to help in communication and translating the financial document into a language that he/she understands.

  2. Different currencies utilized. The auditor will have to convert the money used in the various countries, a multinational operates, to the parent company/head office’s currency.

Itis only by doing this that the auditor can prepare a consolidatedanalysis of the multinational firm’s operations in variouscountries (Gray,2007).

  1. The difference in accounting principles. The auditor needs to ensure that the business employs the relevant accounting standards in its financial statements (Gray, 2007). If the company, for example, is American the auditor has to find out if the multinational has complied with American statutes that touch on business operations and audit.

  2. Administration of the review. The audit firm will have to post its staff in the different countries that the multinational has offices and to attend to the various operating units of the company (Patel, 2006). That creates a logistical challenge in that the audit firm will have to work out an agreement with the multinational on who will meet the cost related to facilitating the audit associates as they visit the various branches of the multinational.

4.Question Foura.Explain?

Ahigh-risk strategy does not affect the inherent risk but may impactthe control related risks during an audit (Gray,2007).

AnInherent risk is a possibilitythata material misstatement may occur. When examining inherent risks, wedisregard the existence of financial systems (Gray,2007).One cannot do much about this risk since it is innate and universalto all companies in a particular line of business.

Controlrelated risks can be mitigated. One looks at the strength of theInternal controls when assessing the control associated risks If afirm has a high-risk business strategy and weak internal systems,then the chances of finding control related risk during an auditincreases (Gray,2007).

Inherentrisks increase due expiring patents, the state of the economy,susceptibility to theft and fraud among other factors. The Internalcontrol system in place influences the control related risks (Gray,2007).

5.Question 5

Anaccountant has both a legal and ethical responsibility to disclosefraudulent business activities. The individual should inform themanagement of the enterprise of any cases of fraud. If the managementdoes not investigate, then the individual should escalate the issueto the local authority. Theaccounting profession does not allow one to participate in or toignore fraud. Doing so may cause the individual to lose the licenseto practice as an accountant (Gray,2007).

Theaccountant should also take the lead in coming up with controls tosafeguard the assets of the organization and to detect and hinderfraud (Gray,2007).

a.Question5 a

No.Hierarchy does not affect his/her responsibility to disclose illegalacts by the employer. Hierarchy only helps the individual know who toinform of the criminal acts witnessed in an enterprise. Usually, anaccountant reports to the head of finance and as such should approachhim/her with the evidence of the wrongdoing. If that is impossible,the individual may contact the management and report the matter(Gray,2007).In some cases then management may also fail to take action like inthe case of Triton. When this happens, he/she may report to the localauthority or bodies in his/her country that governs the accountingprofession.

b.Does the auditor’s position on his firm employment hierarchy affectthis responsibility?

No.Hierarchy does not affect the auditor’s responsibility. Hisresponsibility is to audit the company and to establish whether thebooks of account are a reflection of the position of the enterprise.The auditor is a watchdog and not a bloodhound (Bhattacharyya,2004).The auditor does not conduct an audit with an aim of picking fraud.Instead, the auditor designs and conducts the review in such a mannerthat illegal acts are detectable.

Toalso ensure audit independence, the auditor should directly report tomanagement. It ensures that there are no threats to the independenceof the reviews (Bhattacharyya,2004).Also with that direct line of reporting other staff members of theorganization cannot in any way sabotage the auditor.

7.Question 7

Peatcontracting a local Indonesian accounting firm shows that Peat mayhave lacked the ability to perform the audit despite getting the job.The Public Company Accounting Oversight Board has the mandate to setstandards, enforce them and oversee auditors. PCAOB will come in toascertain that Peat and the contracted firm exercised due diligenceand conducted the audit in the proper manner. Peat’s audit opinionshould show reliance on the contracted accounting firm and theexercising of due diligence to ensure that all information isaccurate and will not lead to restatements. Auditors are expected toperform their work with due care (Gray,2007).

ACC503&nbsp1.Question 1

  • Legal costs. In Indonesia, Triton had to get the drilling rights to the Enim field. A Canadian company owned the right to drill the area, and Triton had to use legal means to battle it for the drilling rights. It thus incurred legal expenses for its lawyer and other legal services.

  • Oil transportation cost. In Indonesia, Triton would transport its oil through pipelines that belonged to Pertamina. It would pay them for this.

  • Taxation. The company’s Indonesian branch has to pay tax to the authority. The agreement between Pertamina and Triton obliged the Indonesian branch of Triton to pay the Indonesian government taxes based on the production Triton got from the Enim oil field. That cost is part of the production cost.

  • Pertamina’s audit charges. These are fees paid to the Indonesian state-owned oil company’s auditors. The auditors review Triton Indonesia accounting and taxation books. Two Indonesian review teams did this periodically. That cost is part of their operational cost and hence an essential cost in Tritons foreign oil and gas operations

  • Bribes. It is also an illegal expense. It is brought about by the corrupt authority in Indonesia. Triton, through Roland paid two Pertamina auditors $160,000 for them to reduce the company’s additional tax assessment (Knapp, 2009).

  • Salaries to the workers. The oil rig workers had to be paid for their services

  • Cost of oil rigs. Triton also includes this cost in the cost of operations


Anincrease in the cost of producing oil and gas in Triton’s foreignoperations leads to an increase in the transfer price of oil and gassold to Tritons domestic operations. The reverse is also true. A highcost of production also reduces the inter-company profit obtainedwhen the Indonesian branch sells oil and gas to Tritons’ domesticoperations. That is because the production cost goes up making itcostly to produce the oil and gas. The business has no option but topass these cost, as well as the bribes it paid, to its domesticoperations. Triton hid bribes, in its books of accounts, underexploration and consultant costs (Knapp, 2009).



Tritoncould have documented policies indicating that the company condemnsand will not condone acts of illicit payment (Bhattacharyya,2004).Policy making is not expensive since it just requires the managementteam to sit down and come up with strategies to seal the gaps in thefinance system.


Tritoncould have enforced its anti-graft policy through punishment. Itshould have punished workers like Siouffi who engaged in corruption.Instead, the company turned a blind eye and even insinuated thatillicit payments were the cost of doing business in Indonesia.Enforcement is inexpensive (Bhattacharyya,2004).


Theorganization should not shun those who refuse to engage in illicittransactions like they did to the accountant, forcing him to resign.Victimization of the controller for whistleblowing also takes place.He declined to sign the company’s 10-k registration statementbecause it did not reflect kickbacks, bribery and illegal payments toofficials, auditors, and inspectors. Whistleblowing in accounting (atleast initially) is both a moral right and a professional duty(Jeffrey,2015). It would not cost much to set up suggestion boxes and similarplatform where whistleblowing can take place anonymously.

Segregationof key accounting and control responsibilities.

Itmeans that more than one person monitors key accounting and oversightresponsibilities (Jeffrey,2015).It makes it difficult for one to carry out acts of illicittransactions because they cannot originate and approve a deal. It iscost free.

Auditreports should be taken seriously and not viewed as a threat.

Onreceiving the audit report in 1989, the management destroyed theauditor’s memorandum. They should have used this to identifyweaknesses in the internal control and strengthen it. It would havebeen cost effective since the only input it needed was managementtaking responsibility and following the law as opposed to turning ablind eye (Jeffrey,2015).

2Question 2&nbspa.Defend your answer?

Yes,it does. The Foreign Corrupt Practices Act criminalizes bribes,kickbacks, and payments by American co-operations to a foreigngovernment intending to start or maintain business relationships. Ifthe multinational is American, then it is bound by the FCPA. The firmauditing the multinational thus has to conduct tests to ensure theclient complies with FCPA. FCPA obligates American businesses to haveinternal controls that can reasonably detect illicit payments thatare foreign in nature (Jeffrey,2015).


a.Defend your answer?

Yes,it is. U.S. companies are legally and ethically bound by Americanlaws when conducting business. That is irrespective of the fact thatthe firm may not be within American borders. The SEC enforce the FCPA(Jeffrey,2015).Thus American companies should not pay bribes just because in it isacceptable to do so in the foreign country they are operating.



TritonU.S.A pays the business income tax. The tax will be at the same rateas that of corporations that are resident in the United States.

Thereis also a 30% branch profit tax on top of the tax mentioned above. Itmay be reduced or eliminated if a relevant treaty provides for this(Holmes,2007).The branch profit tax serves the purpose of treating US operations byforeign corporations like US companies owned by foreigners.


Thistaxation depends on the level and extent the foreign corporation ispresent in the United States and if the income has a nexus (Holmes,2007).Only income from US sources connected effectively with the businessfaces taxation. For earnings not related to the firm, only 30% of theincome is taxed.

c.Branch of a foreign corporation

Theyare taxed differently from domestic companies. Income connected withconducting U.S trade faces the same rate of tax as income of aresident company. They also have to pay a branch profit tax (Holmes,2007).This levy comes into effect at the time gain is deemed remitted orpaid outside of the US.

.Question 2


Considerationneeds to be made to establish if a treaty exists between the US andthe nation where the branch is. The authorized OECD approach could beused to set the price under the relevant agreement. This method doesnot impose the mechanics or specifics of domestic laws. It limits theattributable profit amounts taxable in the host nation for Triton.Triton needs to establish whether the branch in the foreign state iseligible for treaty relief. An agreement procedure is available tomitigate double taxation (Holmes,2007).

b.Foreign Corporation

UnderAmerican law, the IRS reallocates income for US parent companies forpayment. Triton will have to keep this in mind as it set the priceits commodities. Relocated income comes from the controlled foreignoperations to the US Parent company. It may result in double taxationof Triton (Holmes,2007).Triton will have to pursue competent Authority or relief to mitigatedouble taxation.

c.Branch of a foreign corporation

Thereis a risk of double taxation. Triton needs to request competentauthority assistance. It is possible under a tax treaty. Triton mayalso relocate to state with transfer adjustment powers to adjust thetransfer pricing. It will lead to it incurring a lower cost ofassignment hence it does not have to assign a high price to itsproduct between countries. When it comes to taxation, theinternational tax policy adopted by a state will be driven by itseconomic and social objectives (Holmes,2007)

ACC5081.&nbspa.Question 1a

  • Section 30 (A) of the security Securities Exchange Act. (Holmes, 2007) It has an anti-bribery provision that criminalizes kickbacks and bribery

  • Section 13(b) 2 Securities Exchange Act. It states how financial recordkeeping needs to be and also how internal controls should be.

  • Foreign Corrupt Practices Act of 1977(FCPA)

b.Question 1 b

Translationof the foreign currency is the first step. The method of currencytranslation needs to be consistent so that the financial reportsreflect the economic circumstance (Bhattacharyya,2004).ISA 21 elaborates how to do this. It is converting the functionalcurrency into the presentation currency.

Thenext step will be to identify the parent-subsidiary relationship. Aparent company stands alone it is solely responsible for all itsliability (Bhattacharyya,2004). IFRS 10 is applicable here. Once we have this, we eliminateintergroup balances. The next step is to make adjustments forunrealized profits. We finally proceed to calculate goodwill.

c.Question1 c

  • IFRS 10,&nbspConsolidated Financial Statements (Holmes, 2007).

  • IAS 21 Changes in Foreign Exchange Rates

  • Foreign Corrupt Practices Act of 1977(FCPA)

2.a Question 2 a

  • Section 30 (A) of the security Securities Exchange Act (Holmes, 2007). It has an anti-bribery provision that criminalizes kickbacks and bribery

  • Section 13(b) Securities Exchange Act. It states how financial recordkeeping needs to be and also how internal controls should be.

2.b. Question b

  • Section 30 (A) of the security Securities Exchange Act (Holmes, 2007). It has an anti-bribery provision that criminalizes kickbacks and bribery

  • Section 13(b) 2 Securities Exchange Act. It states how financial recordkeeping needs to be and also how internal controls should be.

  • Foreign Corrupt Practices Act of 1977(FCPA)

  • SFAS 19 Treatment of exploration costs and development costs. It can be the successful efforts or the full cost method.

2.c. Question 2 c

  • Section 13(b) 2 of the Securities Exchange Act (Holmes, 2007). It states how financial recordkeeping needs to be and also how internal controls should be.

  • Section 30 (A) of the security Securities Exchange Act. It has an anti-bribery provision that criminalizes kickbacks and bribery.


Throughthe Triton case, we get to analyze the challenges faced by theAccounting Industry. We see the moral and ethical dilemma faced bythose working in organizations where corruption is the norm. Thecontroller suffers for questioning the omission of criticalinformation in the 10-k registration forms. The impunity in thecompany leads to resignation of the former accountant. Even theauditors find evidence of wrongdoing. Despite all these indicators ofa serious problem, management turns a blind eye. Triton officialsdismissed the charges, suggesting that they were “totally withoutmerit” (Knapp, 2009). They further proceed to justify these grossirregularities as the cost of doing business. That is a typicalexample of institutionalized fraud. It means that a company knowinglyengages in fraud.

Themild action is finally taken many years later against the mastermindsof the irregularities. The case reminds us of the integrity andprinciples that govern the accounting and audit industry it alsoshows the role of government in the creation of policies gearedtowards sound business practices. We also see from the case that moreneeds to be done to protect whistleblowers. Companies are alsogetting craftier when it comes to giving kickbacks. The bubbleeconomy encouraged corporate management to adopt increasinglycreative accounting practices (Patel,2006). It is alarming that Institutional fraud is prevalent in moderntimes. The leaders are untouchable and receive very mild punishmentfor wrongdoing. Bill Lee is never implicated directly in the paymentscandal that occurred in Indonesia. He retired in 1996, and ThomasFink takes over. From his actions, Fink comes out as a schemer likeBill Lee. These traits are evident when he reorganizes Triton energymaking it a subsidiary of a company with its headquarters in theCayman Islands. That move was to reduce the company’s tax burdenand also stop the company’s scrutiny under the US Foreign PracticeAct.


Bhattacharyya,H. (2004). Workingcapital management: Strategies and techniques.New Delhi: Prentice-Hall of India.

Gray,I. (2007). Theaudit process: Principles, practice and cases.London: Thomson Learning.

Holmes,K. J. (2007). Internationaltax policy and double tax treaties: An introduction to principles andapplication.Amsterdam: IBFD.

Jeffrey,C. (2015). Researchon professional responsibility and ethics in accounting.

Knapp,M. C. (2009).&nbspContemporaryauditing: Real issues and cases.Mason, OH: South-Western Cengage Learning.

Patel,C. (2006). Acomparative study of professional accountants` judgements.Amsterdam: Elsevier JAI.