Cardillo Travel Systems Essay

Total Length: 1418 words ( 5 double-spaced pages)

Total Sources: 3

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Explain the Securities and Exchange Commission's rationale to charge Cardillo executives with each of the following violations:



Making false representations to outside auditors



Without a doubt, executives of Cardillo Travel Systems made incorrect accounting transactions. As a result, this gave rise to false representations to external auditors. The rational for the SEC to charge these executives with this particular violation is linked to Management's Report on Internal Control Over Financial Reporting Under Section 13(a) or 15(d) of the Securities Exchange Act of 1934. In accordance to this guideline, the SEC expects the company's management to be accountable for maintaining an internal control system over financial report. This is so as to offer sensible guarantee with respect to the reliability of preparing and reporting of financial statements for external users of such statements, comprising of the external auditors (SEC, 2007).



Failing to maintain accurate financial records



Management of a company is obligated to implement good governance and internal control with respect to financial reporting. In the case of Cardillo Systems, considering Smith functioned in a professional and impartial manner by repudiating to sign the affidavit concerning the United Airlines transaction, ought to have been an indication to the executives of the company that falsifying to show the $3 million threshold was a mistake. In particular, the action of the management by placing a deceptive adjusting entry was in violation of section 13(b) 2 (A) set by the SEC. In accordance to this rule, companies are mandated to create and maintain financial records and accounts in accurate detail centered on the GAAP (SEC, 2003).



Failing to file prompt financial reports with the SEC



The executives of Cardillo were in violation as they failed to timely report material financial penalties in the amount of $685,000 to the SEC linked to the settlement in the law suit. The SEC has a reasonable case in charging them as they were in violation of section 13(a) of the Securities and Exchange Act. Based on this section, the SEC is entitled to carry out an administrative proceeding against the late filer and this could in the end bring about the revocation of the company's registration (SEC, 2014).




Violating the insider trading provisions of the federal securities laws



The executives of Cardillo were in violation of insider trading provisions, owing to the fact that they made a shareholder equity transaction through the issuing of 100,000 shares of the company's stock, with the excuse of obscuring for the substantial financial penalties charged by the court. The SEC's actions are rationalized as this undertaking was in violation of section 10b-5 of the Securities and Exchange Act. Rule 10b5-1 provides that an individual trades on the basis of material nonpublic information if a trader is aware of the material nonpublic information when undertaking the purchase or sale. In addition, this guideline provides that individuals obtaining confidential information under circumstances outlined would owe a duty of trust or confidence (SEC, 2013).



Determine who was in violation or compliance of the AICPA's Code of Professional



In this case study, there were individuals who violated the AICPA Code of professional conduct and there are those that complied with it. The individuals that complied with the AICPA Code of Professional conduct consisted of Russell Smith, Helen Shepherd, and Roger Schlonsky. To begin with, Smith properly gave advice to Cardillo's executives informing them that their effort to include the $203,000 transaction would be an incorrect item in the financial report. In addition, his repudiation to sign off on the transaction was an act of compliance to the code of professional conduct, which outlines the importance of integrity amongst professionals. Secondly, Shepherd provided services as an independent auditor. She demonstrated expected professional precaution and skillfully….....

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References

Rittenberg, L. E., Johnstone, K. M., & Gramling, A. A. (2010). Auditing: A business risk approach.

Securities Exchange Commission (SEC). (2003). Recordkeeping and Internal Controls Provisions. Retrieved from: https://www.sec.gov/spotlight/fcpa/fcpa-recordkeeping.pdf

Securities Exchange Commission (SEC). (2007). 17 CFR PART 241: Commission Guidance Regarding Management's Report on Internal Control Over Financial Reporting Under Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Retrieved from: https://www.sec.gov/rules/interp/2007/33-8810.pdf

Securities Exchange Commission (SEC). (2013). Insider Trading. Retrieved from: https://www.sec.gov/answers/insider.htm

Securities Exchange Commission (SEC). (2014). SEC Announces Charges Against Corporate Insiders for Violating Laws Requiring Prompt Reporting of Transactions and Holdings. Retrieved from: https://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542904678#.VNKjv2x0wd

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