This was originally published at GoingConcern.com on September 23, 2009.
I’m frequently accused of being too hard on one firm or the other.
Sometimes PwC defenders crab that I’m a “disgruntled ex-employee who needs to get laid.”
The Deloitte defenders are often Ayn Randers who accuse me of being an anti-capitalist, a Marxist, naïve, non-auditor who has no clue how their firm serves the holy-grail capitalist system. (Remind me again…)
KPMG professionals are dejected, worn down, and disillusioned. “FM, please stop, we can’t all be like you – free, independent, eating grapes, and drinking champagne from Gucci loafers.”
I hardly ever hear from EY. Ok, I once canceled a flight home from NY because sixty professionals had just been cut from their NYC tax practice. In fact, that was a very bad week for EY. But, other than being sued for the failure of Lehman Brothers (the catalyst for the “financial crisis”), their role as auditor of failed Corus Bankshares, exposure to Madoff, and a partner caught up in a swingers sex and insider trading scandal, EY has a lot fewer assorted suits and scandals, it seems, than the others.
Yes, the bar for the Big 4 is very low.
On the other hand, in spite of the alleged audit failure that obscured the impending failure of Lehman Brothers, EY will pick up more than $60 million dollars helping the New York Fed make something of the mess PwC presided over at AIG.
But…who knew there was a huge lawsuit in Hong Kong bubbling, brewing and causing EY constant constipation for years? The trial started September 16th with a bang – and not the good kind – for EY:
“Accounting firm Ernst & Young used “false documents” in audit work for Akai Holdings Ltd., a lawyer representing the failed company’s liquidator told a court…Audit documents from 1994 were back-annotated by EY to “give semblance of an audit trail,” …falsified documents “permeated the defense”… audit documents from 1994 contained handwriting from an auditor who was not employed by EY until 1998… electronic versions of some documents had been… The allegations were “volcanic” and “a bombshell,” the judge said.”
No sooner had the attorney for EY told us, “We emphatically deny anything was done by anyone to mislead…” then EY admits they’re “dismayed,” settles the case for a substantial sum, and suspends the partner who was audit manager at the time.
Lest you think this is all just trial maneuvering, an ugly smear on the firm and a partner, a situation impossible to believe given the honor and integrity of accounting professionals worldwide, I’ll remind you of the recent case of a BDO partner who also took the “audit trail short cut.”
Nardi entered the Manager’s office and directed her to initial and sign the Hemispherx FY 2004 financial statement audit work papers to indicate that she had performed a timely detailed review….affixed her initials and signatures to the Hemispherx audit work papers, which had been tabbed to indicate where initials and signatures were missing. She backdated her initials and signatures to dates preceding the March 16, 2005 issuance of BDO’s audit report.”
How many more of these situations, in backdating cases for example, would come to light if only more went to trial rather than being settled? Maybe we need Judge Rakoff to put a stop to audit firm settlements that obscure the truth about how the work of the auditors really “gets done.”