California Lawyer has a feature this month on “Ponzi’s Auditors” and I have two nice quotes. I’m talking about auditors’ responsibility for detecting fraud under SAS 99 and the doctrine of “in pari delicto” as it relates to the AIG case against PwC currently under review by the New York Court of Appeals.
…The SEC ignored Markopolos’s letter in 2005, closing its Madoff investigation in January 2008 with the conclusion, “The staff found no evidence of fraud.” That report proved embarrassing, and it provided excellent cover for auditors later accused of overlooking red flags. But the facts were undeniable: Billions of dollars in purported assets didn’t really exist, and thousands of reported transactions never occurred.
“Auditing firms are supposed to be evaluating corporate governance, not just acting as bookkeepers,” says Francine McKenna, a principal at Chicago-based McKenna Partners who blogs at re: The Auditors (http://retheauditors .com). “There are very thorough fraud checks under [Statement on Auditing Standards No.] 99 designed to spot red flags. This is very basic stuff, unrelated to the internal controls requirements of Sarbanes-Oxley.”
Read the rest here.