Update: At least Bloomberg isn’t buying the Big 4 firm PR line. They cared enough to give us the detail on PwC.
American International Group Inc., the world’s largest insurer by assets, fell the most in 20 years in New York trading after its auditor found faulty accounting may have understated losses on some holdings.
So-called credit-default swaps issued by AIG, which protect fixed-income investors against losses, declined by $4.88 billion in value in October and November, four times more than previously disclosed, the company said today in a regulatory filing.
AIG said Oct. 11 that it rehired PricewaterhouseCoopers after considering other auditing firms as part of its February 2006 settlement with then-New York Attorney General Eliot Spitzer.
PricewaterhouseCoopers, AIG’s auditor for more than two decades, had approved financial results from 2000 to 2005 that were restated amid Spitzer’s probe, lowering earnings by $3.4 billion. AIG in 2006 agreed to pay $1.64 billion to end probes of its accounting and sales practices under Greenberg.
David Nestor, a spokesman for the accounting firm, and Ken Frydman, a spokesman for Greenberg, declined to comment.
I’ve been complimentary of the WSJ lately, in particular of the WSJ Law Blog. Despite everyone’s concerns about Rupert Murdoch taking over, it seems that the WSJ has been out of the gate fast and hard with stories about Wal-Mart, for example.
But just as I was about to give up looking for a good story for Wednesday’s post, I came across this piece of cotton candy fluff. I usually don’t show the journalist’s name when I reprint segments of the story. You can look that up with the link. But when a journalist does an exceptionally poor, an exceptionally stupid, or an exceptionally good job of covering the story, I want you to know right away who it is. In this case, this is not the first time David Reilly has disapponted me.
This piece of “journalism” seems to have been dictated directly by Deb Harrington .
After Losses, Auditors Take A Hard Line
By DAVID REILLY
Many big Wall Street firms were asleep at the switch in the years leading up to the credit crisis. At least another group — the auditors — seems to be minding the store.
They fell down badly during the tech-stock bubble, but their standards seem to be pretty tight these days.
The most recent evidence: The apparently hard line taken by American International Group Inc.’s auditor, PricewaterhouseCoopers, when it came to how the insurer valued credit default swaps — which are contracts AIG wrote as insurance against default on securities sometimes linked to subprime mortgages. That resulted in AIG upping its loss estimates for these contracts by about $3.6 billion, a move that shocked investors and sent its stock plunging.
Markets tend to be healthier when auditors insist that companies value their assets conservatively. (Blogger Note: Duh Di Duh Duh!)
The result: Investors can place more faith in the numbers they are getting.
There’s other evidence that auditors have been on the job. Companies aren’t restating previously reported results as much as they used to. Restatements fell in 2007 for the first time in the post-Enron era, according to separate studies by research firms Glass Lewis & Co. and Audit Analytics. Audit Analytics said the number of restatements in 2007 was 1,237 compared to a peak of 1,801 the year before. Glass Lewis said the number of companies restating fell to 1,172, compared with 1,346 in 2006. Back in 2001, as the last financial crisis gathered steam, there were only about 600 restatements…
I guess Mr. Reilly has not considered the fact that PwC has been AIG’s auditor for a while. In fact, they were just reappointed with the blessing of Arthur Levitt, in spite of having advised and approved previous valuations and presided during the period when they were investigated and fined by the New York Attorney General.
I guess Mr. Reilly also forgot that the auditors were the ones that advised and approved on the accounting for all of their clients that went through all of those restatements. I don’t think the supposed reduction in restatements is so much due to the fact that the auditors are getting tougher. After all, they are still asking to be able to use their judgement finally instead of just ticking the boxes. They want auditor liability caps before they start using any judgement.
I think the reduction in restatements is because the firms are tired of arguing with their clients and getting fired or resigning. Just look at Pwc and AIG. PwC is hanging on despite being sued by their client and being the one who presided over all of their other messes.
It would be nice if the traditional media did not disguise PR as reporting. The markets and investors would be better served in not being encouraged to have confidence in what has become worthless paper – the auditor’s annual certification of financial statements.