Emcor Company Case Study

2172 Words 9 Pages
Register to read the introduction… Sokol wanted a firm other than JWP’s audit firm, Ernst & Young, to perform the investigation because of close, personal relationships that existed between members of the Ernst & Young audit team and JWP’s key accounting officials, including Ernest Grendi.

7. After discovering additional problems in JWP’s accounting records, Sokol gave the evidence that he had collected to the company’s board and resigned.

8. Before he resigned, Sokol was offered a $1 million “stay” bonus by JWP’s CEO, an offer he declined.

9. JWP eventually filed for bankruptcy and was reorganized as Emcor Group Inc.

10. Ernest Grendi and the three subordinates who helped him direct the fraud were sanctioned by the SEC.

11. Ernst & Young ultimately paid $23 million to settle lawsuits filed against the firm by JWP’s former stockholders.

12. In another lawsuit filed against Ernst & Young by JWP’s former lenders, a federal judge criticized the accounting firm for accommodating Ernest Grendi and for exhibiting “spinelessness” during its annual JWP
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The answer to Question #2 suggests that one approach to encouraging ethical conduct by corporate executives would be to reward them monetarily for such behavior. That suggestion was made in response to a “how to” question, while this question raises the “should” or normative issue regarding such a strategy. You may have a different attitude, but my general inclination in responding to this question is “No.” Shouldn’t ethical behavior or conduct be an implicit and assumed feature of every job role in Corporate America—from janitorial positions to the office of the CEO? In other words, should employees and executives be rewarded for doing what they have been hired to do? On the other hand, I agree that recognizing ethical conduct, such as that of David Sokol, with plaques, public proclamations, and other token gestures is appropriate and likely helps to encourage other individuals to resolve ethical dilemmas by “doing the right …show more content…
Stockholders are generally in a stronger position than creditors and other parties to sue a company’s former auditors. In civil cases filed under the common law, stockholders qualify as primary beneficiaries of an audit in all jurisdictions. On the other hand, lenders and other creditors may only qualify as “foreseen” or “foreseeable” beneficiaries of a given audit. This distinction is important because in many jurisdictions only primary beneficiaries can use auditors for negligence. Other parties in the latter jurisdictions must prove that auditors were guilty of something more than negligence during a given engagement. [Note: For a more elaborate discussion of auditors’ liability under the common law, see the solution to Case 7.7, “Fred Stern & Company, Inc.”] Because of the stronger position that stockholders often have under the common law, audit firms are more inclined to settle stockholder lawsuits out of

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