• Use the Internet or visit the Securities and Exchange Website, located at http://www.sec.gov/, to research at
least two (2) sanctions levied against companies that have violated general accounting principles. Next,
briefly analyze whether or not investors who were misled by relying on financial statements could hold the
audit firm liable for audit failure either by common or securities laws. Provide a rationale for your response.
On November 7, 2016, the Securities and Exchange Commission instituted a settled administrative
proceeding against PowerSecure International that alleged that the company violated the financial
reporting, books and records, and internal control provisions of the federal securities laws by
failing to accurately identify and disclose segment-level operating results from 2012 to 2014, as
required by Generally Accepted Accounting Principles. PowerSecure, which neither admitted nor
denied the SEC’s findings, agreed to pay a $470,000 civil monetary penalty to settle the SEC’s
claims, which did not include any allegation of scienter or fraud.
L3 Technologies is accused of improperly recording $17.9 million in revenue from a
contract with the U.S. Army. In 2013, while under contract with the Army, L3 found it
had performed work that it had not been paid for. A senior finance official ordered 69
invoices be generated, even though there was never any agreement with the Army on
payment for the work. The invoices were never delivered, but L3 recorded the revenue
anyway.
As per the SEC report because of that revenue, employees in L3’s Army sustainment
division barely satisfied an internal target for management incentive bonuses.L3 is also
