Contract and Touche Ross Essay

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Russell Smith was the controller over Cardillo Travel Systems, Inc. Smith had been called to a meeting with executive management concerning an accounting entry that was in dispute. The company was in a $203,000 payment transaction with United Airlines, but failed to have an affidavit explaining why the payment was being made or what specific purpose the funds were to be used for. The affidavit stated stockholder equity to exceed $3million, which Smith knew was wrong and refused to sign.

The company’s founder, Walter Rognlien, wanted Smith to record the payment immediately as revenue, even though the transaction was refundable to United Airlines if not spent. Smith refused to do so and the company let him go.

Cardillo’s independent auditor, Touche Ross, ran upon this transaction that was booked after Smith refused to do so. The engagement partner questioned this transaction and requested a confirmation from United Airlines about it. The confirmation stated that the amount was refundable if certain stipulations of the contractual agreement between the two parties were not fulfilled. When asked to explain the difference of explanation of the transaction, Rognlien said that a secret arrangement was in place for this transaction. However, this agreement was found to be non-existent. Later that year, Touche Ross was terminated as Cardillo’s independent auditor.

The following year, Cardillo hired on KMG Main Hurdman to replace Touche Ross as independent auditor. Once
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