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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.
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.”
Most of what’s been written about the financial crisis and firms that were forcibly acquired, bailed out, or that failed tends to focus on “fair value” as the feckless culprit.What are the auditors’ obligations with regard to clients’ fair value measurements and disclosures? Auditors do not determine fair values. Instead, their role is to, “test management’s fair value measurements and disclosures.” But that obligation is broader than just taking the word of the “masters of the universe.”
I’ve never heard a specific explanation for how PwC could preside over a long running dispute between two of its most important global clients, a dispute that was material to at least one of them, obviously, that had the attention of its highest level partners, and not force a resolution based on consistent application of accounting standards sooner. I’ve been writing almost as long as I’ve been writing here that PwC should resign as AIG’s auditor. Is it not enough that PwC was clearly torn between two clients who held enormous financial sway and lost its independence and objectivity along the way?
Maybe PwC didn’t stand a snowball’s chance in hell to be a truly independent, objective advocate for shareholders by forcing a true and fair presentation, in all material respects, of the financial position of either AIG or Goldman Sachs and the results of their operations and their cash flows in conformity with accounting principles generally accepted in the United States of America. But is there a truly good excuse for PwC to not have been a preemptive strike force, a beacon, an early warning system for shareholders of the financial Armageddon we faced? They had longstanding, thorough, perfect knowledge of both sets of financial statements.
Protiviti is currently soliciting feedback for its new Sarbanes-Oxley Insight Survey.
The results of this survey promise to provide valuable and important insight into the current state of Sarbanes-Oxley compliance for all types of organizations.
When David Hoffman announced his candidacy for U. S. Senate from Illinois, I offered my support immediately. I come from a very politically active family. Participating in politics, volunteering for and donating to campaigns, is in our genes.
My objective in writing this story was to handily contradict the self-serving defense to the fraud at Koss that’s being served up by Grant Thornton and supported by some commentators. But punching holes in their Swiss-cheese defense is like shooting fish in a barrel.
The SEC held a news conference to announce several changes and initiatives in their Enforcement Division. Afterward I joined a few select bloggers invited to a special briefing with Robert Khuzami, the Director of the Division of Enforcement.
It’s my contention that the Big 4 and their partners are still pretty lucky, continuing to dodge any truly deadly SEC enforcement bullets.
Deloitte should be careful what they wish for. The Flanagan insider trading litigation has forced them to reveal their woefully inadequate policies and procedures regarding independence compliance. While trying to placate their clients who were dragged through the mud on this and exact revenge against their own leadership-level partner, a pillar of the Chicago social and philanthropic community, they’ve admitted to allowing Flanagan to breach their standards more than 300 times and to get away with it.
 Francine McKenna (@retheauditors) has more than twenty years of experience in consulting and professional services including tenure at two Big 4 firms, both in the US and abroad. For more info, check the "About" page. |
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