Archive for the ‘The Case Against The Auditors’ Category

Settling For Silence: KPMG Closes The Books On New Century And Countrywide

By Francine • Aug 18th, 2010

It’s no coincidence that settlements were announced less than a week apart for both New Century and Countrywide. As two of the earliest subprime failures, all parties were probably anxious to clear some clutter and make room for other matters. But with no trials, the truth about KPMG’s role in both Countrywide and New Century will be buried.

How many others of the financial crisis bankruptcies, bailouts, takeovers and nationalizations were the subject of a bankruptcy examiner’s report, complete with juicy details about the auditors’ role?

None.
But now there’s Washington Mutual.

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HP, Hurd, Deloitte and Tone At The Top

By Francine • Aug 9th, 2010

Leaders of public companies, like policemen or firemen that do a job for money, also sign up for a public duty. As stewards of a public company, the CEO and CFO’s job is not a reward for years of service, an entitlement after achieving career objectives but a responsibility and honor that should be earned every day by setting an example for all those who work under them.

The auditors serve the role of independent watchdog, guardian of shareholders’ interests in the capital markets. Their relationship to management should be adversarial – not friendly, cozy and comfortable. They are hired and fired by the Board, also supposedly independent. Given the way auditors are compensated, directly by the companies they judge, they have a very difficult job. Regulators are there to guard the guardians and are supposed to make sure they’re doing that job.

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With Cassano Off The Hook, Where Does PwC Hide In The AIG Case?

By Francine • Jul 27th, 2010

In the latest scandal at AIG, we’ve seen PwC and AIG’s most senior executives, former CEO Sullivan and CFO Bensinger, attempt to divert attention from their failures. PwC wants to have their cake and eat it too. They initially claimed to have been duped by AIG management including Cassano but now take credit as heroes for eventually forcing AIG to disclose a material weakness in the valuation process. Isn’t it about time to call a spade a spade?

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Florida Appeals Court Turns Down Heat, For Now, On BDO Seidman

By Francine • Jun 24th, 2010

I was surprised by the news that the record verdict against BDO Seidman in the Bankest fraud had been reversed. I was stunned not because the verdict had been reversed on appeal but by the reasons why. Everyone involved now has to get ready for a new trial because a judge erred in the setup of the proceedings.

That’s not supposed to happen.

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KPMG Settles With New Century

By Francine • Jun 24th, 2010

June 24, 2010: An exclusive from Steven Thomas, attorney for the New Century Liquidating Trustee:
“The New Century Liquidating Trustee and KPMG LLP have entered into a confidential settlement agreement, pursuant to which the lawsuits and arbitration against KPMG LLP and KPMG International have been resolved.”
Update: July 30, 2010
The court appointed Liquidating Trustee and Plan Administrator [...]

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The Leading Indicator of Repurchase Risk Losses? Audited By KPMG

By Francine • Apr 25th, 2010

If you are a regular reader of this site, you may remember the first time I warned you about the poor disclosure practices surrounding repurchase risk. It was all the way back in March of 2007 and I was referring to the lack of disclosures surrounding New Century Financial. I warned you again seven months ago that another KPMG client, Wachovia/Wells Fargo, has the same disclosure issues with regard to repurchase risk. The latest announcements of potentially material losses due to forced repurchases of mortgages from Fannie Mae (Deloitte) and Freddie Mac (PwC) were made by JP Morgan and Bank of America – both audited by PwC. Maybe ya’ll should kick the tires a little more on Citibank’s big comeback.

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Top-Down Versus Bottom-Up: A Flawed Approach To Audit Risk Assessment

By Francine • Apr 10th, 2010

“The recent wave of corporate fraud is raising a harsh question about the auditors who review and bless companies’ financial results: How could they have missed all the wrongdoing? One little-discussed answer: a big change in the way audits are performed.” Jonathan Weil said that in 2004. It’s as true today as it was then.

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Liberté, Egalité, Fraternité: Big Lehman Brothers Troubles For Ernst & Young

By Francine • Mar 15th, 2010

Ernst & Young, the audit firm, had a long and lucrative relationship with Lehman Brothers. So it comes as no surprise to me that EY had a hard time acting independently of their “sticky” client. EY may have ignored a lot of venial sins over almost ten years until “the drug we’re on,” as Lehman’s McDade called the now notorious Repo 105 transactions, added up to the mortal sin of accounting manipulation.

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In Pari Delicto: Are Auditors Equally At Fault In The Big Fraud Cases?

By Francine • Mar 9th, 2010

The way I see it, the in pari delicto doctrine is being used like a pair of needle nosed pliers by audit firm defense lawyers to diffuse the bomb – huge liability for some of the biggest frauds in history. The in pari delicto doctrine attempts to pull the auditors’ tails from the fire by excusing any of their guilty acts due to the approval of those acts by potentially equally guilty executives.

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Send Lawyers, Guns And Money… The Big 4 And Their Litigation

By Francine • Mar 2nd, 2010

The big lawsuits – the ones that accuse the firms of accounting malpractice or various federal securities law violations – have been chronicled ad infinitum. The accounting industry’s response to these threats is to ask for liability caps. As if we don’t have enough moral hazard in the financial system with “too big to fail,” the auditors want to institutionalize their insulation from accountability to their clients, the shareholders, with a policy of “too few to pay for their mistakes.”

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