Question: Weatherford International PLC is a multinational
Weatherford International PLC is a multinational Irish public limited company based in Switzerland, with U.S. offices in Houston, Texas. Weatherford’s shares are registered with the SEC and are listed on the NYSE. Weatherford files periodic reports, including Forms 10-K and 10-Q, with the Commission pursuant to Exchange Act Section 13(a) and related rules thereunder. James M. Hudgins, CPA, served as Weatherford’s Director of Tax from January 1999 until mid-2000, when he became Vice President of Tax, and as an Officer from February 2009 until his resignation on March 31, 2012. Darryl S. Kitay, CPA, served as Weatherford’s Tax Manager and Senior Manager from April 2004 until 2011, then as Weatherford’s Tax Director through January 2013. Kitay reported to Hudgins from April 2004 until March 2012. Weatherford relieved Kitay of all supervisory responsibilities associated with Weatherford’s income tax accounting in May 2012, after the filing of the Second Restatement of financial statements. Weatherford terminated Kitay’s employment in July 2013. Ernst & Young LLP was Weatherford’s external auditor from 2001 to March 2013. On March 7, 2013, Weatherford’s audit committee decided not to re-appoint EY. SEC Order Against EY On October 18, 2016, the SEC announced that EY agreed to pay more than $11.8 million to settle charges related to failed audits of Weatherford based on the auditors’ failure to detect deceptive income tax accounting to inflate earnings. The EY penalty is in addition to the $140 million penalty already agreed to. The combined $152 million will be returned to investors who were harmed by the accounting fraud. The Commission also charged the EY partner who coordinated the audits, Craig Fronckiewicz, and a former tax partner who was part of the audit engagement team, Sarah Adams. Both agreed to suspensions to settle charges that they disregarded significant red flags during the audits and reviews. The SEC’s order stated that, despite placing the Weatherford audits in a high-risk category, EY’s audit team repeatedly failed to detect the company’s fraud until it was more than four years ongoing. The audit team was aware of post-closing adjustments that Weatherford was making to significantly lower its year-end provision for income taxes each year, but it relied on Weatherford’s unsubstantiated explanations instead of performing the required audit procedures to scrutinize the company’s accounting. The SEC’s order also found that EY did not take effective measures to minimize known recurring problems its audit teams experienced when auditing tax accounting.2 Facts of the Case Between 2007 and 2012, Weatherford, a large multinational provider of oil and natural gas equipment and services, issued false financial statements that inflated its earnings by over $900 million in violation of U.S. GAAP. Weatherford issued materially false and misleading statements about its net income, EPS, effective tax rate (“ETRâ€), and other key financial information. Weatherford did not have sufficient internal accounting controls to identify and properly account for its accounting of income taxes throughout the relevant period. As a result, Weatherford was forced to restate its financial statements on three separate occasions over eighteen months. The first restatement was made public on March 1, 2011, when Weatherford announced that it would restate its financial results for 2007-2010 and that a material weakness existed in its ICFR for the accounting of income taxes. That restatement, filed on March 8, 2011, reduced previously reported net income by approximately $500 million (the “First Restatementâ€). $461 million of the First Restatement resulted from a four-year income tax accounting fraud orchestrated by Hudgins and Kitay. Hudgins and Kitay made numerous post-closing adjustments or “plugs†to fill gaps to meet ETRs that Weatherford previously disclosed to financial analysts and the public. This deceptive intercompany tax accounting improperly inflated Weatherford’s earnings and materially understated its ETR and tax expense. The fraud created the misperception that the tax structure Weatherford designed to reduce its tax expense and ETR was far more successful than it actually was. From 2007 to 2010, Weatherford regularly promoted its favorable ETR to analysts and investors as one of its key competitive advantages, which it attributed to a superior international tax avoidance structure that Hudgins constructed at the urging of senior management. After announcing the First Restatement, Weatherford’s stock price declined nearly 11 percent in one trading day ($2.38 per share), closing at $21.14 per share on March 2, 2011. The decline eliminated over $1.7 billion from Weatherford’s market capitalization. Weatherford announced additional restatements in February 2012 and July 2012 (the “Second Restatement†and “Third Restatement,†respectively). After the First Restatement, Weatherford attempted to remediate its material weakness in internal control over income tax accounting. Throughout its remediation efforts in 2011, Weatherford filed its Forms 10-Q on a timely basis and falsely reassured investors that it was performing additional reconciliations and post-closing procedures to ensure that its financial statements were fairly presented in conformity with GAAP. However, Weatherford, through Hudgins and Kitay, failed to review, assess, and quantify known income tax accounting issues that had a high risk of causing additional material misstatement as early as July 2011. When Weatherford filed its Second Restatement on March 15, 2012, Weatherford reported a $256 million drop in net income from 2007-2011 as a result of additional errors in its income tax accounting, and its material weakness in internal control over income tax accounting remained. At least $84 million of that drop in net income resulted from an income tax accounting GAAP violation Hudgins and Kitay knew about, but failed to assess and quantify, before Weatherford filed its third quarter financial statements. Four months after filing the Second Restatement, Weatherford announced that it was withdrawing reliance on all previous financial statements because it had discovered additional income tax errors that reduced prior period net income by $107 million. By the time Weatherford issued its Third Restatement on December 17, 2012, Weatherford had reduced net income from prior periods by an additional $186 million, largely driven by books, records, and internal accounting controls issues identified and corrected during Weatherford’s remediation efforts in 2012. Tax Strategy A key component of Weatherford’s tax strategy was to develop a superior international tax avoidance structure that reduced Weatherford’s ETR and tax expense (and increased EPS and cash flow) while providing a competitive advantage over U.S.-based peer companies. In 2002, Weatherford changed its place of incorporation from the U.S. to Bermuda, a 0% tax jurisdiction, through a process known as inversion. Weatherford further refined its international tax structure from 2003 through 2006 by implementing a series of hybrid instruments to facilitate the movement of revenue from higher tax rate jurisdictions (i.e., Canada and U.S.) to lower tax rate jurisdictions (i.e., Hungary and Luxembourg). Hybrid instruments are often used in international tax planning to achieve deductions in one, typically high tax rate, jurisdiction and shift income to another, typically low tax rate, jurisdiction. Hybrid instruments are structured to incorporate features of both debt and equity, such that the instrument typically qualifies as debt in one jurisdiction and equity in another. Payments on debt may be deducted in computing taxable income while the yields are accrued but not necessarily paid and, therefore, not calculated as taxable income. As a result, these international tax avoidance strategies reduced Weatherford’s ETR from 36.3 percent in 2001 to 25.9 percent by the end of 2006. Weatherford senior management and Hudgins understood that Weatherford’s tax structure and resulting ETR added significant value and was material to analysts and investors alike. Wall Street analysts closely followed Weatherford’s ETR and its effect on earnings. Each percentage point in Weatherford’s ETR translated into $0.02 to $0.03 in EPS. Weatherford’s senior management knew its tax department was perpetually understaffed and overworked during the years leading up to the First Restatement. Hudgins led a tax staff that was roughly the same size as when he was hired, and Hudgins pressed his employees to work long hours to make Weatherford’s tax structure extremely competitive. Weatherford and Hudgins quickly gained a reputation with the company’s external auditor as a challenging and demanding client known for taking aggressive accounting positions, particularly in the area of income tax accounting. Although Weatherford reduced its ETR by nearly 10 percent from 2001 to the end of 2006, its CFO remarked that Weatherford’s ETR remained somewhat above that of other inverted peer companies in his response to an analyst’s question during the year-end earnings call on January 30, 2007. Soon thereafter, Weatherford started reporting ETR results that created a false perception that its international tax structure was outperforming similarly-situated competitors by a significant margin. For example, in 2008 and 2009, fueled by its deceptive income tax accounting practices, Weatherford reported pre-restatement ETRs of 17.1 percent and 6.5 percent. In connection with fiscal years 2007 through 2010, Hudgins and Kitay engaged in fraudulent practices relating to income tax accounting that violated GAAP and made Weatherford’s financial statements materially false and misleading. During each of those years, Weatherford repeatedly and publicly disclosed ETR estimates and recorded tax expenses that Hudgins and Kitay knew, or were reckless in not knowing, were fabricated. Each year, Hudgins and Kitay made or authorized unsupported post-closing adjustments to accounting data that intentionally lowered Weatherford’s actual ETR and tax expense. To do so, they reversed accounting data that had been correctly input into Weatherford’s consolidated tax provision from the company’s accounting system, and did not notify Weatherford’s accounting department why they had made such adjustments. Hudgins and Kitay performed no work to support the adjustments, which were merely a “plug†to arrive at the lower estimated ETR and tax expense amounts. Without disclosing how they arrived at their numbers, they provided these amounts for inclusion in Weatherford’s consolidated financial statements, which senior management shared with analysts and investors repeatedly during earnings calls and public financial statements. This conduct went undetected for over four fiscal years. Kitay identified the existence of the adjustments to EY each year, but, when questioned about them, Kitay made misleading and inconsistent responses to the auditors and failed to disclose the true reason for the adjustments. Kitay sometimes asked Hudgins to review his responses before providing them to EY. The errors were finally discovered in February 2011. By that time, a “phantom income tax receivable†had increased to such dramatically disproportionate heights, over $460 million, that it defied even the unsupported explanations of Hudgins and Kitay. Shortly thereafter, Weatherford released the First Restatement in March 2011. Results for 2007 The following summarizes the accounting and tax maneuvers for 2007. We limit the discussion to 2007 for the sake of brevity. Throughout the first three quarters of 2007, Weatherford recorded ETR and tax expense pursuant to FIN 18, “Accounting for Income Taxes in Interim Periods.†FIN 18 prescribes an estimated annualized ETR approach for computing the tax provisions for the first three quarters of the year, which is based on a company’s best estimate of current year ordinary income. GAAP, however, does not allow companies to use FIN 18 to calculate their year-end tax provisions. To comply with GAAP, Weatherford was required to record ETR and tax expense at year end pursuant to FAS 109, “Accounting for Income Taxes.†FAS 109 establishes standards on how companies should account for and report the effects of income taxes, including the calculation of the year-end consolidated tax provision. Tax department personnel reviewed that information, after which the tax provisions for legal entities were finalized and then combined on a region-by-region basis. The region-based tax provisions were then consolidated to arrive at a single tax provision from which current and deferred assets and liabilities, associated tax expense (or benefit), and ETR were calculated and recorded. Shortly before Weatherford was scheduled to release its year-end financial results for 2007, however, Hudgins and Kitay discovered the year-end ETR and tax expense that had been calculated pursuant to FAS 109 far exceeded the ETR estimates and tax expense disseminated publicly to analysts and investors during the first three quarters of 2007 based on their ETR estimates. Faced with a deadline for reporting earnings, Hudgins and Kitay falsified the year-end consolidated tax provision by making an unsubstantiated manual $439.7 million post-closing “plug†adjustment to two different Weatherford Luxembourg entities. To do so, they intentionally reversed accounting data that had been correctly input to Weatherford’s consolidated tax provision via the company’s accounting system.3 The resulting plug adjustment, which Hudgins and Kitay then improperly applied a 35 percent tax rate to, allowed Weatherford to reduce its tax expense by $153.9 million for the year and to lower its ETR in line with previous ETR estimates publicly disclosed during quarterly calls with analysts. Hudgins and Kitay took no steps to determine the necessity and accuracy of the plug adjustment, either before or after it was made. They performed no work at any time to determine whether plugging the gap was appropriate under GAAP and made no attempt to substantiate the difference between the their publicly disclosed ETR estimates and tax expenses with the FAS 109 actual results that they were witnessing. Both Hudgins and Kitay knew, or were reckless in not knowing, that they should have reviewed and substantiated the actual tax numbers after the close process, but they never did. Hudgins and Kitay made no attempt to alert Weatherford’s accounting department, internal auditor, or senior management of the significant issues related to its FAS 109 actual ETR results. Nor did they notify EY of any discrepancy. During 2007 and throughout the relevant period, Hudgins signed representation letters relied upon by Weatherford senior management and EY indicating, without exception, that the ICFR for the accounting of income taxes were effective and that the income tax accounting was completed in accordance with GAAP. These statements were false. Phantom Income Tax Receivable The inappropriate plug adjustments and the resulting improper tax benefits recorded from 2007 through 2010 created a $461 million debit balance to Weatherford’s current income tax payable, which Respondents reclassified as an income tax receivable for reporting purposes. This improper accounting should have raised red flags long before the First Restatement. Hudgins and Kitay made misleading statements about the true reasons for the growing tax debit balance, claiming falsely that they had made either sizeable prepayments or overpayments to foreign tax jurisdictions that they would be working to recover. For example, during the fourth quarter of 2009, Weatherford reclassified the large debit balance within the Current Income Tax Payable account to a Prepaid Other account. In response to EY inquiries about the large “Prepaid Other†debit balance, Kitay responded, “We do not believe it would be appropriate to classify these balances as receivables until such time as a claim for refund has been filed.†By 2010, Hudgins was aware of the phantom receivable and told others at Weatherford that he was working to recover all overpaid amounts, although he knew there were no such overpaid amounts. In performing its audit of Weatherford’s financial statements, EY and Weatherford identified a number of additional income tax accounting errors that increased Weatherford’s tax expense by tens of millions of dollars, including: (1) failure to timely accrue foreign taxes; (2) uncertain tax position accruals that were not reflected in Weatherford’s consolidated tax provisions; (3) entries to prematurely reverse liabilities related to uncertain tax positions (some of which were improperly classified as current taxes payable); and (4) understatements of income tax expense related to deferred tax liability. Material Weakness in ICFR On or about February 15, 2011, after consideration of the errors and issues discovered and after consultation with EY, Weatherford’s internal audit group concluded that there was a material weakness in internal control surrounding accounting for income taxes due to inadequate staffing and technical expertise, ineffective review and approval practices, inadequate processes to effectively reconcile income tax accounts, and inadequate controls over the preparation of Weatherford’s quarterly tax provision. After the identification of the material weakness, EY expanded the audit procedures for all income tax accounts, including a reconciliation of Weatherford’s current taxes payable (and receivable) accounts. On or about February 20, 2011, a review of Weatherford’s income tax receivable balance uncovered the phantom $461 million receivable which, in turn, led to the First Restatement. At no time prior to this process did Hudgins or Kitay inform anyone of the true reason they made the post-closing adjustments. On March 1, 2011, Weatherford filed a Form 8-K with the Commission in which it made public for the first time that it would be restating its financial results for 2007-2010 and that a material weakness existed in its ICFR for the accounting of income taxes. Weatherford’s stock price dropped nearly 11% to $21.14 on the news. Restated Financial Statements On March 8, 2011, Weatherford filed its First Restatement in which it restated its previously reported financial results for the years ended December 31, 2007, 2008, 2009, and the first three quarters of 2010. According to Weatherford, the First Restatement was necessary to correct “errors in [the Company’s] accounting for income taxes.†The following table depicts the impact the Restatement had on Weatherford’s reported net income for the periods covered by the First Restatement. ![Weatherford International PLC is a multinational Irish public limited company based in Switzerland, with U.S. offices in Houston, Texas. Weatherford’s shares are registered with the SEC and are listed on the NYSE. Weatherford files periodic reports, including Forms 10-K and 10-Q, with the Commission pursuant to Exchange Act Section 13(a) and related rules thereunder.
James M. Hudgins, CPA, served as Weatherford’s Director of Tax from January 1999 until mid-2000, when he became Vice President of Tax, and as an Officer from February 2009 until his resignation on March 31, 2012.
Darryl S. Kitay, CPA, served as Weatherford’s Tax Manager and Senior Manager from April 2004 until 2011, then as Weatherford’s Tax Director through January 2013. Kitay reported to Hudgins from April 2004 until March 2012. Weatherford relieved Kitay of all supervisory responsibilities associated with Weatherford’s income tax accounting in May 2012, after the filing of the Second Restatement of financial statements. Weatherford terminated Kitay’s employment in July 2013.
Ernst & Young LLP was Weatherford’s external auditor from 2001 to March 2013. On March 7, 2013, Weatherford’s audit committee decided not to re-appoint EY.
SEC Order Against EY
On October 18, 2016, the SEC announced that EY agreed to pay more than $11.8 million to settle charges related to failed audits of Weatherford based on the auditors’ failure to detect deceptive income tax accounting to inflate earnings. The EY penalty is in addition to the $140 million penalty already agreed to. The combined $152 million will be returned to investors who were harmed by the accounting fraud. The Commission also charged the EY partner who coordinated the audits, Craig Fronckiewicz, and a former tax partner who was part of the audit engagement team, Sarah Adams. Both agreed to suspensions to settle charges that they disregarded significant red flags during the audits and reviews.
The SEC’s order stated that, despite placing the Weatherford audits in a high-risk category, EY’s audit team repeatedly failed to detect the company’s fraud until it was more than four years ongoing. The audit team was aware of post-closing adjustments that Weatherford was making to significantly lower its year-end provision for income taxes each year, but it relied on Weatherford’s unsubstantiated explanations instead of performing the required audit procedures to scrutinize the company’s accounting. The SEC’s order also found that EY did not take effective measures to minimize known recurring problems its audit teams experienced when auditing tax accounting.2
Facts of the Case
Between 2007 and 2012, Weatherford, a large multinational provider of oil and natural gas equipment and services, issued false financial statements that inflated its earnings by over $900 million in violation of U.S. GAAP. Weatherford issued materially false and misleading statements about its net income, EPS, effective tax rate (“ETR”), and other key financial information. Weatherford did not have sufficient internal accounting controls to identify and properly account for its accounting of income taxes throughout the relevant period.
As a result, Weatherford was forced to restate its financial statements on three separate occasions over eighteen months. The first restatement was made public on March 1, 2011, when Weatherford announced that it would restate its financial results for 2007-2010 and that a material weakness existed in its ICFR for the accounting of income taxes. That restatement, filed on March 8, 2011, reduced previously reported net income by approximately $500 million (the “First Restatement”). $461 million of the First Restatement resulted from a four-year income tax accounting fraud orchestrated by Hudgins and Kitay. Hudgins and Kitay made numerous post-closing adjustments or “plugs” to fill gaps to meet ETRs that Weatherford previously disclosed to financial analysts and the public. This deceptive intercompany tax accounting improperly inflated Weatherford’s earnings and materially understated its ETR and tax expense.
The fraud created the misperception that the tax structure Weatherford designed to reduce its tax expense and ETR was far more successful than it actually was. From 2007 to 2010, Weatherford regularly promoted its favorable ETR to analysts and investors as one of its key competitive advantages, which it attributed to a superior international tax avoidance structure that Hudgins constructed at the urging of senior management.
After announcing the First Restatement, Weatherford’s stock price declined nearly 11 percent in one trading day ($2.38 per share), closing at $21.14 per share on March 2, 2011. The decline eliminated over $1.7 billion from Weatherford’s market capitalization.
Weatherford announced additional restatements in February 2012 and July 2012 (the “Second Restatement” and “Third Restatement,” respectively). After the First Restatement, Weatherford attempted to remediate its material weakness in internal control over income tax accounting. Throughout its remediation efforts in 2011, Weatherford filed its Forms 10-Q on a timely basis and falsely reassured investors that it was performing additional reconciliations and post-closing procedures to ensure that its financial statements were fairly presented in conformity with GAAP. However, Weatherford, through Hudgins and Kitay, failed to review, assess, and quantify known income tax accounting issues that had a high risk of causing additional material misstatement as early as July 2011. When Weatherford filed its Second Restatement on March 15, 2012, Weatherford reported a $256 million drop in net income from 2007-2011 as a result of additional errors in its income tax accounting, and its material weakness in internal control over income tax accounting remained. At least $84 million of that drop in net income resulted from an income tax accounting GAAP violation Hudgins and Kitay knew about, but failed to assess and quantify, before Weatherford filed its third quarter financial statements.
Four months after filing the Second Restatement, Weatherford announced that it was withdrawing reliance on all previous financial statements because it had discovered additional income tax errors that reduced prior period net income by $107 million. By the time Weatherford issued its Third Restatement on December 17, 2012, Weatherford had reduced net income from prior periods by an additional $186 million, largely driven by books, records, and internal accounting controls issues identified and corrected during Weatherford’s remediation efforts in 2012.
Tax Strategy
A key component of Weatherford’s tax strategy was to develop a superior international tax avoidance structure that reduced Weatherford’s ETR and tax expense (and increased EPS and cash flow) while providing a competitive advantage over U.S.-based peer companies. In 2002, Weatherford changed its place of incorporation from the U.S. to Bermuda, a 0% tax jurisdiction, through a process known as inversion.
Weatherford further refined its international tax structure from 2003 through 2006 by implementing a series of hybrid instruments to facilitate the movement of revenue from higher tax rate jurisdictions (i.e., Canada and U.S.) to lower tax rate jurisdictions (i.e., Hungary and Luxembourg). Hybrid instruments are often used in international tax planning to achieve deductions in one, typically high tax rate, jurisdiction and shift income to another, typically low tax rate, jurisdiction. Hybrid instruments are structured to incorporate features of both debt and equity, such that the instrument typically qualifies as debt in one jurisdiction and equity in another. Payments on debt may be deducted in computing taxable income while the yields are accrued but not necessarily paid and, therefore, not calculated as taxable income. As a result, these international tax avoidance strategies reduced Weatherford’s ETR from 36.3 percent in 2001 to 25.9 percent by the end of 2006.
Weatherford senior management and Hudgins understood that Weatherford’s tax structure and resulting ETR added significant value and was material to analysts and investors alike. Wall Street analysts closely followed Weatherford’s ETR and its effect on earnings. Each percentage point in Weatherford’s ETR translated into $0.02 to $0.03 in EPS.
Weatherford’s senior management knew its tax department was perpetually understaffed and overworked during the years leading up to the First Restatement. Hudgins led a tax staff that was roughly the same size as when he was hired, and Hudgins pressed his employees to work long hours to make Weatherford’s tax structure extremely competitive. Weatherford and Hudgins quickly gained a reputation with the company’s external auditor as a challenging and demanding client known for taking aggressive accounting positions, particularly in the area of income tax accounting.
Although Weatherford reduced its ETR by nearly 10 percent from 2001 to the end of 2006, its CFO remarked that Weatherford’s ETR remained somewhat above that of other inverted peer companies in his response to an analyst’s question during the year-end earnings call on January 30, 2007. Soon thereafter, Weatherford started reporting ETR results that created a false perception that its international tax structure was outperforming similarly-situated competitors by a significant margin. For example, in 2008 and 2009, fueled by its deceptive income tax accounting practices, Weatherford reported pre-restatement ETRs of 17.1 percent and 6.5 percent.
In connection with fiscal years 2007 through 2010, Hudgins and Kitay engaged in fraudulent practices relating to income tax accounting that violated GAAP and made Weatherford’s financial statements materially false and misleading. During each of those years, Weatherford repeatedly and publicly disclosed ETR estimates and recorded tax expenses that Hudgins and Kitay knew, or were reckless in not knowing, were fabricated. Each year, Hudgins and Kitay made or authorized unsupported post-closing adjustments to accounting data that intentionally lowered Weatherford’s actual ETR and tax expense. To do so, they reversed accounting data that had been correctly input into Weatherford’s consolidated tax provision from the company’s accounting system, and did not notify Weatherford’s accounting department why they had made such adjustments.
Hudgins and Kitay performed no work to support the adjustments, which were merely a “plug” to arrive at the lower estimated ETR and tax expense amounts. Without disclosing how they arrived at their numbers, they provided these amounts for inclusion in Weatherford’s consolidated financial statements, which senior management shared with analysts and investors repeatedly during earnings calls and public financial statements. This conduct went undetected for over four fiscal years. Kitay identified the existence of the adjustments to EY each year, but, when questioned about them, Kitay made misleading and inconsistent responses to the auditors and failed to disclose the true reason for the adjustments. Kitay sometimes asked Hudgins to review his responses before providing them to EY.
The errors were finally discovered in February 2011. By that time, a “phantom income tax receivable” had increased to such dramatically disproportionate heights, over $460 million, that it defied even the unsupported explanations of Hudgins and Kitay. Shortly thereafter, Weatherford released the First Restatement in March 2011.
Results for 2007
The following summarizes the accounting and tax maneuvers for 2007. We limit the discussion to 2007 for the sake of brevity.
Throughout the first three quarters of 2007, Weatherford recorded ETR and tax expense pursuant to FIN 18, “Accounting for Income Taxes in Interim Periods.” FIN 18 prescribes an estimated annualized ETR approach for computing the tax provisions for the first three quarters of the year, which is based on a company’s best estimate of current year ordinary income. GAAP, however, does not allow companies to use FIN 18 to calculate their year-end tax provisions.
To comply with GAAP, Weatherford was required to record ETR and tax expense at year end pursuant to FAS 109, “Accounting for Income Taxes.” FAS 109 establishes standards on how companies should account for and report the effects of income taxes, including the calculation of the year-end consolidated tax provision. Tax department personnel reviewed that information, after which the tax provisions for legal entities were finalized and then combined on a region-by-region basis. The region-based tax provisions were then consolidated to arrive at a single tax provision from which current and deferred assets and liabilities, associated tax expense (or benefit), and ETR were calculated and recorded.
Shortly before Weatherford was scheduled to release its year-end financial results for 2007, however, Hudgins and Kitay discovered the year-end ETR and tax expense that had been calculated pursuant to FAS 109 far exceeded the ETR estimates and tax expense disseminated publicly to analysts and investors during the first three quarters of 2007 based on their ETR estimates. Faced with a deadline for reporting earnings, Hudgins and Kitay falsified the year-end consolidated tax provision by making an unsubstantiated manual $439.7 million post-closing “plug” adjustment to two different Weatherford Luxembourg entities. To do so, they intentionally reversed accounting data that had been correctly input to Weatherford’s consolidated tax provision via the company’s accounting system.3
The resulting plug adjustment, which Hudgins and Kitay then improperly applied a 35 percent tax rate to, allowed Weatherford to reduce its tax expense by $153.9 million for the year and to lower its ETR in line with previous ETR estimates publicly disclosed during quarterly calls with analysts.
Hudgins and Kitay took no steps to determine the necessity and accuracy of the plug adjustment, either before or after it was made. They performed no work at any time to determine whether plugging the gap was appropriate under GAAP and made no attempt to substantiate the difference between the their publicly disclosed ETR estimates and tax expenses with the FAS 109 actual results that they were witnessing. Both Hudgins and Kitay knew, or were reckless in not knowing, that they should have reviewed and substantiated the actual tax numbers after the close process, but they never did. Hudgins and Kitay made no attempt to alert Weatherford’s accounting department, internal auditor, or senior management of the significant issues related to its FAS 109 actual ETR results. Nor did they notify EY of any discrepancy.
During 2007 and throughout the relevant period, Hudgins signed representation letters relied upon by Weatherford senior management and EY indicating, without exception, that the ICFR for the accounting of income taxes were effective and that the income tax accounting was completed in accordance with GAAP. These statements were false.
Phantom Income Tax Receivable
The inappropriate plug adjustments and the resulting improper tax benefits recorded from 2007 through 2010 created a $461 million debit balance to Weatherford’s current income tax payable, which Respondents reclassified as an income tax receivable for reporting purposes. This improper accounting should have raised red flags long before the First Restatement.
Hudgins and Kitay made misleading statements about the true reasons for the growing tax debit balance, claiming falsely that they had made either sizeable prepayments or overpayments to foreign tax jurisdictions that they would be working to recover. For example, during the fourth quarter of 2009, Weatherford reclassified the large debit balance within the Current Income Tax Payable account to a Prepaid Other account. In response to EY inquiries about the large “Prepaid Other” debit balance, Kitay responded, “We do not believe it would be appropriate to classify these balances as receivables until such time as a claim for refund has been filed.” By 2010, Hudgins was aware of the phantom receivable and told others at Weatherford that he was working to recover all overpaid amounts, although he knew there were no such overpaid amounts.
In performing its audit of Weatherford’s financial statements, EY and Weatherford identified a number of additional income tax accounting errors that increased Weatherford’s tax expense by tens of millions of dollars, including: (1) failure to timely accrue foreign taxes; (2) uncertain tax position accruals that were not reflected in Weatherford’s consolidated tax provisions; (3) entries to prematurely reverse liabilities related to uncertain tax positions (some of which were improperly classified as current taxes payable); and (4) understatements of income tax expense related to deferred tax liability.
Material Weakness in ICFR
On or about February 15, 2011, after consideration of the errors and issues discovered and after consultation with EY, Weatherford’s internal audit group concluded that there was a material weakness in internal control surrounding accounting for income taxes due to inadequate staffing and technical expertise, ineffective review and approval practices, inadequate processes to effectively reconcile income tax accounts, and inadequate controls over the preparation of Weatherford’s quarterly tax provision.
After the identification of the material weakness, EY expanded the audit procedures for all income tax accounts, including a reconciliation of Weatherford’s current taxes payable (and receivable) accounts. On or about February 20, 2011, a review of Weatherford’s income tax receivable balance uncovered the phantom $461 million receivable which, in turn, led to the First Restatement. At no time prior to this process did Hudgins or Kitay inform anyone of the true reason they made the post-closing adjustments.
On March 1, 2011, Weatherford filed a Form 8-K with the Commission in which it made public for the first time that it would be restating its financial results for 2007-2010 and that a material weakness existed in its ICFR for the accounting of income taxes. Weatherford’s stock price dropped nearly 11% to $21.14 on the news.
Restated Financial Statements
On March 8, 2011, Weatherford filed its First Restatement in which it restated its previously reported financial results for the years ended December 31, 2007, 2008, 2009, and the first three quarters of 2010. According to Weatherford, the First Restatement was necessary to correct “errors in [the Company’s] accounting for income taxes.” The following table depicts the impact the Restatement had on Weatherford’s reported net income for the periods covered by the First Restatement.
Violations
SEC Securities Act provisions prohibit any person/corporation from:
• Obtaining money or property in the offer or sale of securities by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading;
• Engaging in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser in the offer or sale of securities;
• Failing to make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect their transactions and dispositions of their assets;
• Devising and maintaining a system of internal accounting controls that doesn’t sufficiently provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP.
Weatherford agreed to report to the SEC during a two-year term its compliance with Commission regulations and GAAP regarding its accounting for income taxes, financial reporting, and the status of any remediation, implementation, auditing, and testing of its internal accounting controls and compliance measures. Hudgins and Katay were denied the privilege of appearing and practicing before the Commission as an accountant for five years after which they could apply for reinstatement. Financial penalties included: $140 million, as to Weatherford; for Hudgins, disgorgement of $169,728, prejudgment interest of $39,339, and a civil money penalty in the amount of $125,000, for a total of $334,067 to the SEC; and for Kitay, a civil money penalty in the amount of $30,000 to the SEC.
Questions:
1. Explain how pressures and incentives drove the actions taken by Hudgins and Kitay to commit financial statement fraud.
2. Describe the problems in the audit of Weatherford International by Ernst & Young.
3. Describe the deficiencies in the internal accounting systems, ICFR, and corporate governance at Weatherford. Were there any violations of the rules of conduct in the AICPA Code by Hudgins or Kitay? Explain.
4. Explain how Weatherford and Hudgins used aggressive accounting positions in the area of income tax accounting.](../images/weatherford-international-plc-is-a-multinational-irish-public-limited-company-based-in-266758-1.jpg)
Violations SEC Securities Act provisions prohibit any person/corporation from: • Obtaining money or property in the offer or sale of securities by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; • Engaging in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser in the offer or sale of securities; • Failing to make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect their transactions and dispositions of their assets; • Devising and maintaining a system of internal accounting controls that doesn’t sufficiently provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP. Weatherford agreed to report to the SEC during a two-year term its compliance with Commission regulations and GAAP regarding its accounting for income taxes, financial reporting, and the status of any remediation, implementation, auditing, and testing of its internal accounting controls and compliance measures. Hudgins and Katay were denied the privilege of appearing and practicing before the Commission as an accountant for five years after which they could apply for reinstatement. Financial penalties included: $140 million, as to Weatherford; for Hudgins, disgorgement of $169,728, prejudgment interest of $39,339, and a civil money penalty in the amount of $125,000, for a total of $334,067 to the SEC; and for Kitay, a civil money penalty in the amount of $30,000 to the SEC. Questions: 1. Explain how pressures and incentives drove the actions taken by Hudgins and Kitay to commit financial statement fraud. 2. Describe the problems in the audit of Weatherford International by Ernst & Young. 3. Describe the deficiencies in the internal accounting systems, ICFR, and corporate governance at Weatherford. Were there any violations of the rules of conduct in the AICPA Code by Hudgins or Kitay? Explain. 4. Explain how Weatherford and Hudgins used aggressive accounting positions in the area of income tax accounting.
> Do you believe the standard for liability under the PSLRA better protects auditors from legal liability than the standards which existed before the Act was adopted by Congress? Explain.
> Danny Boy, a local CPA who owns a tax practice, is being investigated by the IRS for the preparation of false income tax returns for a client. The IRS alleges that the individual taxpayer/client used a substantial amount of his company’s funds for person
> Revenue recognition in the Xerox case called for determining the stand-alone selling price for each of the deliverables and using it to separate out the revenue amounts. Why do you think it is important to separate out the selling prices of each element
> What must a plaintiff assert in a Section 11 claim under the Securities Act of 1933 to properly allege an “opinion” statement is materially misleading? When might certain financial statement items constitute “opinions”?
> Distinguish between the legal standards of negligence and recklessness.
> Rule 10b-5 is a regulation created under the Securities and Exchange Act of 1934 that targets securities fraud. Explain how the provision is applied in determining whether fraud has occurred including when earnings management is the underlying motivation
> Explain how the quality of corporate governance, risk management, and compliance systems are critical in controlling financial restatement risk within organizations.
> Explain how restatements due to operational issues can trigger restatements.
> Explain how errors in accounting and reporting can trigger restatements.
> Distinguish between big R and little r restatements. What is required of management and the external auditors when such events occur?
> Assume the auditor has determined that prior financial statements need to be restated. What disclosures and other information should be communicated to shareholders, investors, and creditors about this matter?
> It has been said that “Businesses don’t fail – Leaders do.” Explain what this means.
> When should financial statements be restated?
> What is the purpose of using financial analysis to spot earnings management?
> Assume you are asked in an interview: Give me one word that describes you best? Then, explain why it is important in effective leadership. What would you say?
> Describe the role of professional judgment in ethical leadership as it pertains to accountants and auditors and the link to their moral role in society.
> On August 15, 2017, the SEC completed an Administrative Hearing process initiated by a PCAOB investigation of KPMG, LLP and one of their audit partners John Riordan, CPA1 for conducting a materially deficient audit of Miller Energy Resources Inc. KPMG be
> Billy Muldoon, CPA and CFO, just finished reading a preliminary draft of his company’s annual audit report from Local CPAs, LLC. He was concerned that the CPA firm plans to issue a qualified audit report because it had concluded that the company had a ma
> Alexion is a global biopharmaceutical company whose shares are traded on the Nasdaq Stock Market in the U.S. The company develops and sells drugs for patients with life-threatening rare and ultra-rare diseases. Alexion began commercial sales of its first
> When financial results aren’t what they seemed to be – and a company is forced to issue material financial restatements –should it be required to develop policies to claw back incentive pay and bonuses that were awarded to senior managers on the basis of
> Kay & Lee LLP was retained as the auditor for Holligan Industries to audit the financial statements required by prospective banks as a prerequisite to extending a loan to the client. The auditor knows whichever bank lends money to the client is likely to
> On December 13, 2012, Vertical Pharmaceuticals Inc. and an affiliated company sued Deloitte & Touche LLP in New Jersey state court for alleged accountant malpractice, claiming the firm’s false accusations of fraudulent conduct scrapped Trigen Laboratorie
> In the 2007 case of Paul V. Anjoorian v. Arnold Kilberg & Co., Arnold Kilberg, and Pascarella & Trench, the Rhode Island Superior Court ruled that a shareholder can sue a company’s outside accounting firm for alleged negligence in the preparation of the
> QSGI, Inc., is in the business of purchasing, refurbishing, selling, and servicing used computer equipment, parts, and mainframes. During its 2008 fiscal year (FY) and continuing up to its filing for Chapter 11 bankruptcy on July 2, 2009 (the “relevant p
> Joker & Wild LLC has just been sued by its audit client, Canasta, Inc., claiming the audit failed to be conducted in accordance with generally accepted auditing standards, lacked the requisite care expected in an audit, and failed to point out that inter
> Helen Roberts is reviewing two transactions recorded by her client, Biotechnologies (Biotech), as part of her accounting firm’s annual audit of the client for the December 31, 2021, financial statements. She knows Biotech is under pressure to maximize re
> Your tax client, Steve Michaels, told you that his former accountant who prepared his annual tax returns made errors that resulted in him suffering more than $100,000 in losses. Apparently, the errors involved adjustments to his income for a loss resulti
> In Chapter 4 we discussed the artificial tax shelter arrangements developed by KPMG LLP for wealthy clients that led to the settlement of a legal action with the Department of Treasury and the Internal Revenue Service. On August 29, 2005, KPMG admitted t
> One of the earliest frauds during the late 1990s and early 2000s was at Sunbeam. The SEC alleged in its charges against Sunbeam that top management engaged in a scheme to fraudulently misrepresent Sunbeam’s operating results in connecti
> On March 4, 2009, the SEC reached an agreement with Krispy Kreme Doughnuts, Inc., and issued a cease-and-desist order to settle charges that the company fraudulently inflated or otherwise misrepresented its earnings for the fourth quarter of its FY2003 a
> What are financial statement restatements?
> On June 12, 2017, GE announced that 30-year GE veteran and current President and CEO of GE Healthcare John Flannery would be replacing Jeff Immelt as CEO of the company as of August 1, 2017. Immelt had been the CEO for 16 years, taking over that role fro
> The Kraft Heinz Co. case was discussed in the chapter. To refresh your memory, on May 6, 2019, Kraft Heinz disclosed that it would restate its financial statements due to faulty procurement practices. The financial statements for 2016, 2017, and the firs
> Monsanto is an agricultural seed and chemical company that manufactures and sells glyphosate, an herbicide, under the trade name “Roundup.” Roundup historically was one of Monsanto’s most profitable products, and the company sells it to both retailers an
> Jeremy Strong, CPA was recently hired as the new CFO of Imageware Consolidated (IC) a small publicly owned company. This is Jeremy’s first job outside of public accounting, leaving Deloitte after ten years, where he rose in the ranks to senior audit and
> Meredith Merriweather, CPA is the CFO of Trego Bikes and Trikes (TBT), a manufacturer of Bicycles ranging from tricycles to high end racing bikes. The company has good market penetration and has seen a very stable demand for its bikes over the last few y
> The story of Theranos, a company that sought to make blood tests cheaper, is a cautionary tale for Silicon Valley about what can happen when a company fails to develop internal control systems or overrides them, and when the CEO creates a psychological c
> You just became the new external auditor of a large public company that carries freight throughout the world. You just began to audit the 2021 financial statements and have come across a transaction that occurred in 2020 that would materially change the
> The North Face, Inc. (North Face) is an American outdoor product company specializing in outerwear, fleece, coats, shirts, footwear, and equipment such as backpacks, tents, and sleeping bags. North Face sells clothing and equipment lines catered toward w
> The SEC bought an action against BMW NA for inaccurate disclosures of its retail vehicle sales volume in the United States. In order to close the gap between actual retail sales volume and internal retail sales targets, and in an effort to publicly maint
> According to an October 16, 2017, article by Richard Clough of Bloomberg News,1 General Electric reported earnings per share of $.28, $.13, $.19 and $.15 for the quarter ending September 30, 2017, on an earnings call. Yes, you read that correctly, GE rep
> What is the risk of management bias for each earnings judgment and estimate? What safeguards should be in place to mitigate the risk of management bias, if any? What is the external auditor’s role in this process?
> It took a long time but the Securities and Exchange Commission finally acted and held auditors responsible for the fraud that occurred in banks during the financial recession in 2014. Surprisingly to some, the TierOne bank case explained below was the na
> It’s no fun accepting a position for your dream job and then red flags are raised that make you wonder about the culture of the company. Those are the thoughts of Donna Mason on January 18, 2022, as she prepares for a meeting with her a
> The CFO, King Bernard, of Blackswan Petfood, a large publicly traded manufacturer of organic gourmet dog and cat food, is getting ready for the quarterly conference call with major investors and financial analysts in two days. The King has been reviewing
> Exhibit 1 presents the fourth quarter press release of Allergan. Allergan is a global pharmaceutical company and a leader in a new industry model – Growth Pharma. Allergan’s product lines include Botox, Juvederm, Latis
> We can’t recognize revenue immediately, Paul, since we agreed to buy similar software from DSS,” Sarah Young stated. “That’s ridiculous,” Paul Henley replied. &acir
> Winners & Losers, Inc. (WLI) is a Nevada corporation with its principal place of business in Las Vegas. Its business model is to provide electronic sports betting in conjunction with a new law that legalized it in Nevada. The companyâ€
> Ronnie Maloney, an audit partner for Forrester and Loomis, a registered public accounting firm in Boston, just received a meeting request from Jack McDuff, the chairman of the audit committee of Digital Solutions, one of his clients. The audit committee
> Diamond Foods, based in Stockton, California, is a premium snack food and culinary nut company with diversified operations. The company had a reputation of making bold and expensive acquisitions. Due to competition within the snack food industry, Diamond
> Maines and Wahlen state in their research paper on the reliability of accounting information: “Accrual estimates require judgment and discretion, which some firms under certain incentive conditions will exploit to report non-neutral accruals estimates wi
> In what some are suggesting is the worst financial reporting fraud since Enron, Wirecard filed for bankruptcy in June of 2020 after admitting that €1.9 billion Euros ($2.1bn U.S.) on its balance sheet (representing roughly 25% of its total assets) probab
> Travis McGee, a Senior Audit Manager for a Big Four Audit, Consulting, Tax and Data Analytics organization, has just spent the last year helping the firm rollout its new Artificial Intelligence (AI) based audit infrastructure. Travis is considered one of
> On January 30, 2018, General Electric (GE) announced that it was taking an after-tax charge of $6.2 billion in the December 31, 2017 financial statements and additional cash funding of $15 billion in statutory capital contributions to its insurance subsi
> Margaret Dairy is a CPA and the managing partner of Dairy and Cheese, a regional CPA firm located in northwest Wisconsin. She just left a meeting with a well-respected regional credit union headquartered in her hometown. Margaret was asked whether her fi
> Richard Lange, CPA, is a sole practitioner. The largest audit client in his office is Echo Park Sportswear (EP Sports). EP Sports is a privately owned company in South Bend, Indiana with a 12-person board of directors. Richard was hired by the audit comm
> Assume Ethan Lester and Vick Jensen are CPAs. Ethan was seen as a “model employee” who deserved a promotion to director of accounting, according to Kelly Fostermann, the CEO of Fostermann Corporation, a Maryland-based, largely privately held company that
> PwC violated SEC rule 2-02(b) of Regulation S-X and PCAOB Rule 3525 by engaging in improper professional conduct in violation of the independence rules on audit clients. This case is unique because the firm had mischaracterized certain nonaudit services
> On September 10, 2019, the Public Company Accounting Oversight Board (PCAOB) censured Marcum LLP and Alfonse Gregory on the basis of its findings that Marcum repeatedly violated PCAOB rules and standards over the course of four years by failing to satisf
> When Karen Ward started at Ernst & Young in 2013, only four senior managers in her division were women. All the partners were men. This was a red flag, but she didn’t see it then but soon realized that EY’s lack of female leaders was no accident but the
> Joe Kang is an owner and audit partner of Han, Kang & Lee, LLC. As the audit of Frost Systems was reaching its concluding stages on January 15, 2022, Kang met with Kate Boller, the CFO, who is also a CPA, to discuss the inventory valuation of one its hig
> Do you agree with Thomas McKee's conception of earnings management as applied to (a) operational earnings management and (b) accounting earnings management?
> Katy Carmichael, CPA, was just promoted to audit manager in the technology sector at a large public accounting firm. She started at the firm six years ago and has worked on a number of the same client audits for multiple years. She prefers being placed o
> Family Games, Inc., is a privately owned company with annual sales from a variety of wholesome electronic games that are designed for use by the entire family. The company sees itself as family-oriented and with a mission to serve the public. However, du
> Lance Popperson woke up in a sweat, with an anxiety attack coming on. Popperson popped two anti-anxiety pills, laid down to try and sleep for the third time that night, and thought once again about his dilemma. Popperson is an associate with the accounti
> In the first three months of 2021, Johnson Pharmaceutical’s sales and earnings were declining, placing the company in financial distress. As a result, Johnson had begun the process of borrowing $1 million to stay afloat. Around the same time, Paul Leona
> Jerry Maloney, CPA has been working at Mason Pharmaceuticals for fifteen years. Mason is a Fortune 1000 company whose stock trades on the New York Stock Exchange. He came to Mason after starting his career in the audit practice of PwC working on clients
> In 2005, Tony Menendez, a former Ernst & Young LLP auditor and Director of Technical Accounting and Research Training for Halliburton, blew the whistle on Halliburton’s accounting practices. The fight cost him nine years of his life. Just a few months la
> On September 8, 2016, Wells Fargo announced it was paying $185 million in fines to Los Angeles city and federal regulators to settle allegations that its employees created millions of fake bank accounts for customers. It also agreed to pay $142 million i
> John Stanton, CPA, is a seasoned accountant who left his Big-4 CPA firm Senior Manager position to become the CFO of a highly successful hundred million-dollar publicly-held manufacturer of solar panels. The company wanted John’s expertise in the renewab
> What possessed a CEO to hype a product that didn’t work and lie to financial institutions, pharmacies, the government, and the public about it? Is it hubris; plain and simple? Or was there something nefarious going on? The case of Theranos, an once high-
> What prompted partners at KPMG to facilitate cheating on internal training exams? In 2018, Timothy Daly, a former lead engagement partner, solicited and received questions and answers to the examination from a colleague, who was a second audit partner on
> Needles talks about the use of a continuum ranging from questionable or highly conservative to fraud to assess the amount to be recorded from for an estimated expense. Do you believe that the choice of an overly conservative or overly aggressive amount w
> Leaving home for the first time and going off to college is an exciting and stressful time for tens of thousands of students across the U.S. each year. Leaving the familiarity of family, friends and community behind and entering an often much more divers
> “I’m sorry, Jen. That’s the client's position,” Travis said. “I just don’t know if I can go along with it, Travis,” Jen replied. “I know. I agree with you. But, Chefs Delight is our biggest client, Jen. They’ve warned us that they will put the engagemen
> You are the Controller for Mountain Manufacturing which produces specialized components used in the manufacturing of cell phones sold by Apple, Motorola, and Samsung. The company is located in Southglenn Colorado, a suburb of Denver. Demand for your prod
> Jenna was irritated after class today. A classmate, Ben, had argued about the need for social justice reform that included defunding the police. Jenna was offended by the comments in part because her father was a policeman. She spoke to others in her cir
> Cleveland Custom Cabinets is a specialty cabinet manufacturer for high-end homes in the Cleveland Heights and Shaker Heights areas. The company manufactures cabinets built to the specifications of homeowners and employs 125 custom cabinetmakers and insta
> Section 179 of the IRS tax code allows qualifying businesses to deduct the full cost of “eligible property” on their income taxes as an expense, rather than requiring the cost of the property to be capitalized and depreciated over its useful life. The pr
> Milton Manufacturing Company produces a variety of textiles for distribution to wholesale manufacturers of clothing products. The company’s primary operations are located in Long Island City, New York, with branch factories and warehous
> On October 5, 2017, New York Times Investigative reporters Jodi Kantor and Megan Twohey broke the story ‘Harvey Weinstein Paid Off Sexual Harassment Accusers for Decades.’ Harvey Weinstein is one of the most powerful and influential movie executives in
> Sam and John have been friends for 20 years. They met in college and worked together for 10 of the 20 years. During that time, each made a promise that if they won a lottery they would share the winnings 50:50. Even though they drifted apart over the yea
> Hailey Declaire, a CPA, just sent the tax return that she prepared for a client in the marijuana growing and distribution business, Weeds ‘R’ Us, to Harry Smokes the manager of the tax department. Harry had just fielded a phone call from the president of
> Relevance and faithful representation are the qualitative characteristics of useful information under SFAC 8. How does ethical reasoning enter into making determinations about the relevance and faithful representation of financial information?
> Veronica Betterman, a fifth-year accounting major at Anywhere University, wakes up in a cold sweat. Like many accounting majors, Veronica did an internship in public accounting the previous spring resulting in a full-time job offer with Anywhere CPAs to
> Ed Giles and Susan Regas have never been happier than during the past four months since they have been seeing each other. Giles is a 35-year-old CPA and a partner in the medium-sized accounting firm of Saduga & Mihca. Regas is a 25-year-old senior accoun
> What motivates a parent to bribe key people to get their kid admitted to a prestigious university? That is the ethical question of “Operation Varsity Blues.” In March 2019, the story broke of an alarming fraudulent scheme by parents to pay off middleman
> Some people believe that promise-keeping is the essence of ethical behavior. Do you agree?
> According to the website Indeed, one question to ask the interviewer when you are interviewing for a job is: "What are the characteristics of someone who would succeed in this role?" Why might you ask such a question?
> Do you think it is ethical for a prospective employer to investigate your social media footprint in making a hiring decision? What about monitoring social networking activities of employees while on the job?
> One explanation about rights is that there is a difference between what we have the right to do and what the right thing to do is. Explain what you think is meant by this statement. Do you believe that if someone attacks your credibility on social media
> Why are Equity, Diversity and Inclusivity considered to be important for businesses today?
> Is there a difference between cheating on a math test, pocketing an extra $10 from the change given to you at a restaurant, and using someone else’s ID to get a drink at a bar?
> Is it ever appropriate to lie to someone? Explain why or why not using ethical reasoning. Give one example of when you believe lying might be justified.
> Explain the SEC rules and regulations applicable to the public disclosure of non-GAAP financial measures.
> There is an old industry joke that if you ask an accountant what is four plus four, they will tell you it's whatever you want it to be. Explain what might be meant by this statement.
> Cedargrove Cider processes and bottles apple cider for sale through retail and big box grocery outlets. It had no work in process on May 31 in its only inventory account. The company started 19,100 cases during June. On June 30, work in process is 4,000
> Barrett eSellers is an online retail store offering a variety of products. As a part of its business model, it offers free returns. The returns are processed at the Returns Processing Facility (RPF) near one of the air freight hubs. The RPF checks the re
> Refer to the example in Appendix B. The numbers in Exhibit 5.21 for the fifth, sixth, and seventh units were given. Required Using the formula Y = aXb and the data given in the problem, verify the labor time required and the cost amounts for the fifth, s
> Fountain Precision Products (FPP) manufactures high-technology measurement systems. The systems are both complex and unique in the sense that only a handful are sold, usually to a single customer’s specification. The last unit of model FPP-28X sold was t
