• With A Trial Comes The Truth

    By • May 8th, 2008 • Category: Pure Content


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    I almost deleted this Google Alert, yet another summary of the BDO, BES case. It seemed it was only regurgitating the facts and describing again for us the sword hanging over BDO, ready to come down and annihilate them if their appeal of the verdict fails.

    But as I read to the bottom, I saw a few more details and tidbits that were of interest. They reminded me of how rarely cases like this go to trial and, so, how seldom we get to hear the firms and their lawyers try to defend the conundrum of their “global networks.” And again, how fragile the position next tier holds as ccompetitors-in-waiting to the Big 4 really is.

    BDO case may set precedent for umbrella bodies’ liability
    BDO Seidman faces a £264m bill in the US, following a claim from Banco Espirito Santo that it was negligent in its audits of factoring company Bankest

    …The case now hinges on a ‘right to control’ issue which, if proved, would be the first instance of a network facing punishment for a member firm’s problems…

    ‘This case looks at the way these big accountancy firms set themselves up and advertise to the world that they are one big firm, but distance themselves when problems occur. It’s going to be the same whether you’re talking about KPMG, PwC or any of the big firms,’ said Thomas.

    Auditors from BDO Seidman were accused of ‘accounting malpractice’ and being ‘grossly negligent’ in audits between 1998 and 2002. Banco ES claims BDO International had ‘the right to control’ BDO Seidman. ‘BDO International controls BDO Seidman right down to how they type their letters,’ said Thomas.

    BDO International claims control relationships were not so strict, with only ten people working at the umbrella body, and described the control claims are ‘puffery’.

    Rhett Traband, representing BDO International at the appeals court argued that the network’s audit manual, which all BDO firms follow, does not apply to all audits.

    ‘The only agreement between the parties specifies that [the rules] only apply in limited circumstances to trans-national audits rules and inward referred work, neither of which were the Bankest audit.’

    Traband added: ‘[BDO International] cannot come in during an audit and say to them “do it this way”.’

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    2 Responses »

    1. If BDO International was operating as intended, this lawsuit is frivilous. The average accounting umbrella organization has little control over the day to day activities of the member firms. Unless I hear more evidence, I think this case is without merit.

    2. @Anonymous It’s true, the international umbrellas are intended to be just that, an umbrella legal entity, housing the administrivia of managing the brand. However, it’s the perception of a global organization and the fact that in a trial, the truth about the advertising versus the reality comes out that is interesting to me. I’ve already posted many times that the global firms cannot control their members other than kicking them out, like a franchisee and franchisor. As long as you pay your fees, you’re left alone. Until you get cited by the inspectors or in a lawsuit, then we kick your ass out. We can’t worry that now there’s no Kentucky Fried Chicken in Jakarta.