As a result of Shell's knowing or reckless overstatement of its oil and gas reserves in its financial statements, the group's commission filings, specified previously, as well as other public statements, contained materially false and misleading statements and disclosures.

These filings contained untrue statements of material fact concerning the company's reported proved reserves and omitted to state facts necessary to make the statements made, in light of the circumstances under which they were made, not misleading. These statements constituted a violation of Rule 10b-5 of the Securities Exchange Act. 2. Section 13(a) of the Exchange Act requires issuers to file such annual and quarterly reports as the commission may prescribe and in conformity with such rules as the commission may promulgate. Rule 13a-1 requires the filing of accurate annual reports that comply with the SEC's Regulation S-X.

Rule 12b-20 requires an issuer to include material information as may be necessary to make the required statements, in light of the circumstances under which they were made, not misleading. The following periodic reports that Royal Dutch and Shell Transport filed with the commission were not prepared in accordance with rules promulgated by the commission: Form 20-F for fiscal years 1997-2002. 3. Shell violated Section 12 of the Exchange Act, in that it failed to

(1) make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected the transactions and dispositions of its assets;

(2) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that

(a) transactions were executed in accordance with management's general or specific authorization;

(b) transactions were recorded as necessary to permit preparation of financial statements in conformity with GAAP or any other criteria applicable to such statements, and to maintain accountability for assets;

(c) access to assets was permitted only in accordance with management's general or specific authorization; and

(d) the recorded accountability for assets was compared with the existing assets at reasonable intervals and appropriate action was taken with respect to any differences.

Royal Dutch and Shell Transport agreed to settle the charges by consenting to a cease-and-desist order finding violations of the antifraud, internal controls, recordkeeping, and reporting provisions of the federal securities laws, and by paying $1 disgorgement and a $120 million penalty in a related action. Shell also committed an additional $5 million to develop and implement a comprehensive internal compliance program under the direction

Questions
1. Use ethical reasoning to evaluate the actions of Shell management in this case with respect to accounting for and disclosing information about proved reserves.

2. As discussed aggressive accounting and earnings management techniques. Apply your knowledge from that chapter to the facts of the Shell case with respect to its proved reserves. Be sure to address specific actions taken that illustrate aggressive accounting and earnings management.

3. Given the facts of the case, describe the failures in corporate governance including internal controls and the relationship between the Group auditor and management and explain how they contributed to the reporting problems with proved reserves at Shell.