Nickels and Dimes – They Add Up…

Michael David Thomas over at The Daily Caveat does a nice wrap up on the latest charges by the SEC against AOL/Time Warner.

Who is AOL/Time Warner’s auditor?

It has been Ernst and Young since before the merger between AOL and Time Warner in January of 2000.

Ernst and Young was also AOL’s auditor before the merger. So, whatever schemes these executives on either side had developed, it probably had been discussed, reviewed and blessed (or perhaps overlooked ?) for many years on both sides by the same folks at EY.

FORMER AOL EXECS CHARGED BY SEC ON BILLION DOLLAR FRAUD
Four former AOLers have already settled with the SEC. Four more still have a date with a New York courthouse. And just think, some called this case dead only a year or so back… (See this article for more on that score and an interesting link to yesterday’s PurchasePro store.

At issue are allegations that the eight executives participated in a scheme to fluff up AOL company value in the 2000 to 2002 period. AOL got caught at the time, essentially, paying themselves for their own advertising. This allowed AOL to pump up its online advertising revenue by about $1 billion….

Coincidentally, I’ve been deluged the last few days by Google Alerts promoting, in one form or another, the latest report on internet advertising revenues from the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers. The IAB sponsors the Internet Advertising Revenue Report, which is conducted independently by the New Media Group of PwC. The full report is issued twice yearly for full and half-year data, and top-line quarterly figures are issued for the first and third quarters. The Interactive Advertising Bureau is an industry organization that represents over 375 leading interactive companies that actively engage in and support the sale of interactive advertising. IAB members are responsible for selling over 86% of online advertising in the United States.

The most recent press release quotes an audit partner as spokesman for the New Media Group of PwC.

Interactive advertising is not just the future, it is the here and now, as it represents a meaningful and growing component of U.S. advertising and marketing spend,” said David Silverman, partner, Assurance, PricewaterhouseCoopers.

So let me get this straight…

PwC’s Assurance (or Audit) practice, not the Advisory (or Consulting) practice has an alliance with the Interactive Advertising Board, an industry sponsored organization that promotes the business of its members, some of them probably PwC audit clients. (See how words can fool ya?) PwC develops data telling everyone how much business the media companies are doing, ostensibly to help them, via their industry organization, attract higher and higher advertising rates from their customers.

Does it seem right that the audit practice should be involved in an alliance that helps their clients pump up revenues when auditors are supposed to be the objective, standards-based arbiters of whether their clients are recording and reporting advertising revenues accurately and transparently, especially in the new interactive media space?

The PCAOB/SEC should take a look at the IAB/PwC alliance agreement and see what the return on this investment in time and money is for PWC? Are they getting paid to do this? Or is it just a way to promote their expertise? Why not make sure the the alliance is organized and promoted only via the Advisory or Transaction Services practice? Seems more independent and objective to me.

And what is the New Media Group of PwC? Can’t find it anywhere on their site or in the online universe, except in reference to this study.

In light of the shenanigans that occurred at AOL, it may be better for the audit firms to steer clear of this type of appearance of playing both sides – auditors promoting business interests through non-independent industry associations and trying to audit these business activities at the same companies later.

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