JAMAICA WATER PROPERTIES

Topics: Audit, Auditing, Internal control, Big Four auditors / Pages: 9 (2175 words) / Published: Oct 11th, 2013
CASE 1.3

JAMAICA WATER PROPERTIES

Synopsis

This case focuses on David Sokol, an executive who has made a “name” for himself in recent years within the energy industries. After becoming recognized as a successful “turnaround” agent for troubled companies, Sokol was hired in 1992 to serve as the chief operating officer of JWP, Inc., a large, New York-based conglomerate. At the time, JWP had an impressive history of sustained profits and revenue growth that was being threatened by the company’s far-flung operations and unwieldy organizational structure. Unknown to Sokol, JWP’s impressive operating results over the prior few years had been embellished by the company’s CFO and several of his top subordinates. Because of Sokol’s reputation for being a “hands-on” executive who insisted on personally obtaining a thorough understanding of his employer’s financial affairs, the CFO attempted to conceal misrepresentations in JWP’s accounting records from Sokol. Despite the efforts of the CFO, Sokol quickly uncovered suspicious items in JWP’s accounting records after he assumed responsibility for the company’s day-to-day operations. The diligent and persistent Sokol eventually met with JWP’s CEO and informed him of the problems he had uncovered. Sokol insisted that an accounting firm other than JWP’s audit firm be retained to perform a forensic investigation. Sokol questioned whether JWP’s audit firm could objectively perform that investigation since there were close relationships between key members of the audit engagement team and JWP’s top accountants, including its CFO. In fact, the CFO and three of his key subordinates had formerly worked for JWP’s audit firm. Before the second accounting firm could complete its investigation, Sokol discovered additional distortions in JWP’s accounting records. Sokol rejected a $1 million “stay” bonus offered to him by JWP’s CEO and resigned as the

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