The Charter Company’s Accounting Issues

The Charter Company, which is a cable TV service provider, has challenges in maintaining its cash flow and the CEO decided to misrepresent its customer base, incorrectly capitalize costs, and manipulate the billing rates. After making these efforts, the CEO realized that the company was going to miss its projected annual cash flow by almost 20%.

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As a result, the CEO decided to alter the local arrangements with Signet and Startime, who are the major suppliers of the cable TV to the Charter Company, by overpaying each box by a margin of 7%. This deal was made with an understanding that the suppliers would purchase their advertisement services from Charter for the company to recover the overpayment.

In the end, the CEO misled the auditor about the cash flow as within the projections, against the basic principles of accounting. However, the auditor discovered the plot and reported the matter to investors who filed a complaint against the CEO alongside the two suppliers in line with the standing to sue provision.

In response, the suppliers applied for an alternative dispute resolution mechanism in the form of negotiation and arbitration as part of the pretrial conference. The counterclaim by the suppliers was that the arrangement to overpay from the boxes was a local negotiation deposition aimed at realizing mutual benefits for all the parties.

The investors disputed this claim and filled for a brief underlying possible award such as damages such being summoned to bankruptcy court. Besides, the investors argued that arbitration clause may be abused due to conflict of interest between the parties involved since their mandate does not fit within the concurrent jurisdiction. Lastly, the three parties conspired to deny investors the benefit of exclusive jurisdiction. Therefore, there is justiciabe controversy that the pleadings of the suppliers ignored the question of facts before the arbitration.

Analysis of the case

Aiders and abettors are parties to an offence and can be summoned by the probate court. They share crime intent with the person who commits the crime as may be established by interrogatories, as is the case with the two suppliers. They may be liable as a principal, an accessory before or after the fact in line with the question of law. Aiders and abettors are liable for fraudulent misrepresentation when they execute some overt act, or give advice or encouragement to commit a crime that can be established through judicial review.

The plaintiff bears the burden of proof and must prove that there is a material misstatement or deceptive conduct, wrongful state of mind, a connection with the purchase or sale of a security, reliance, economic loss, and loss causation within the appropriate docket to benefit from default judgment as may be applied under the jurisdiction in cyberspace (Mann & Barry, 2010).

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A misstatement or omission is material if it influences an investor’s opinion on investing in a company. Material facts comprise of substantial changes in dividends or earnings and significant misstatements of asset value.

The materiality of the misstatement is based on the nature of the transaction, failure to disclose material facts in the financial statement, serious violation of the Generally Accepted Accounting Principles (GAAP), and the amount involved in relation to the company’s profitability or turnover within the federal jurisdiction. Examples of material transactions in the case are treating running expenses as assets, overstating revenue, wrong debtor balances, changing the company’s cut off dates with an aim of inflating revenue.

The small claim court can come up with the following material transactions, first, is the recording of advertising purchases as revenue and capitalizing of purchase of the set top with an aim of misleading the auditors in giving their opinion on the financial statements as part of the summary jury trial, especially as part of the posttrial motions. Also, backdating the inflated prices of the set top boxes made the entry appear as if the company entered into an agreement a month before the transaction date.

These entries violate the Accounting Standards; thus, can be subjected to either a motion for judgment on the pleadings or just motion for judgment. The evidence presented before the court by the parties may lead to filling the motion to dismiss, especially when potentiality of a motion for a new trial is very low.

The suppliers acted unethically despite having had no contractual obligation to disclose financial information of Charter Company contrary to the appellate jurisdiction that defines the scope of organizational legal standing. Reflectively, they were a party to fraud committed by Charter Company, noting that all knew of the unethical business deal.

This may form the basis of any potential filing for a motion for direct verdict within the voir dire. Although it is the responsibility of management of Charter to prepare accurate financial records and to provide accurate financial information to all the stakeholders of an organization, the suppliers were a syndicate in the well planned move to alter financial statements of Charter Company. This raises the federal question of the scope of writ of certiorari since the evidence is in line with the concurrent jurisdiction.

However, extension of liability to suppliers will disrupt the supply chain since the pleadings when filing the motion for judgment on the pleadings. The global supply chain is an interconnected relationship of buyers and sellers.

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A contrary ruling will taint the global supply chain since companies will not get into informal business agreements as indicated in the rule of four in dispute resolution. The chain aims to move final product from producers to consumers irrespective of the diversity of citizenship. Transactions resulting from such agreements need to be recorded in the books of account in accordance with the long arm statute.

Arbitration ends with an independent third party imposing a binding decision on the conflicting parties. Thus, an arbitrator will provide a professional settlement to the disputing parties in the form of an answer. The privity of contract doctrine states that it is only parties involved in a contract have the legal mandate of taking any action meant to enforce such a contract, irrespective of the venue or jurisdiction. Thus, a third party has no legal mandate of enforcing the same when the benefits promised are denied.

Privity of contract forms a benchmark of contractual law which implies that both the third party and the contracting party who makes the condition may demand performance in favor of the third party as part of the general jurisdiction. However, this many not be so when it is not indicated in the contract due to its limited jurisdiction nature.

From our case, it is apparent that the common law applies the doctrine of Privity of Contract when making some precedents within the original jurisdiction. In a suit for damages, the plaintiff cannot recover more than the amount required in compensating for his own loss and not that of a third party.

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StudyCorgi. (2020, May 8). The Charter Company’s Accounting Issues. Retrieved from https://studycorgi.com/the-charter-companys-accounting-issues/

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