The Leading Indicator of Repurchase Risk Losses? Audited By KPMG

If you are a regular reader of this site, you may remember the first time I warned you about the poor disclosure practices surrounding repurchase risk. It was all the way back in March of 2007 and I was referring to the lack of disclosures surrounding New Century Financial. I warned you again seven months ago that another KPMG client, Wachovia/Wells Fargo, has the same disclosure issues with regard to repurchase risk. The latest announcements of potentially material losses due to forced repurchases of mortgages from Fannie Mae (Deloitte) and Freddie Mac (PwC) were made by JP Morgan and Bank of America – both audited by PwC. Maybe ya’ll should kick the tires a little more on Citibank’s big comeback.

Top-Down Versus Bottom-Up: A Flawed Approach To Audit Risk Assessment

“The recent wave of corporate fraud is raising a harsh question about the auditors who review and bless companies’ financial results: How could they have missed all the wrongdoing? One little-discussed answer: a big change in the way audits are performed.” Jonathan Weil said that in 2004. It’s as true today as it was then.

Liberté, Egalité, Fraternité: Big Lehman Brothers Troubles For Ernst & Young

Ernst & Young, the audit firm, had a long and lucrative relationship with Lehman Brothers. So it comes as no surprise to me that EY had a hard time acting independently of their “sticky” client. EY may have ignored a lot of venial sins over almost ten years until “the drug we’re on,” as Lehman’s McDade called the now notorious Repo 105 transactions, added up to the mortal sin of accounting manipulation.

In Pari Delicto: Are Auditors Equally At Fault In The Big Fraud Cases?

The way I see it, the in pari delicto doctrine is being used like a pair of needle nosed pliers by audit firm defense lawyers to diffuse the bomb – huge liability for some of the biggest frauds in history. The in pari delicto doctrine attempts to pull the auditors’ tails from the fire by excusing any of their guilty acts due to the approval of those acts by potentially equally guilty executives.

Send Lawyers, Guns And Money… The Big 4 And Their Litigation

The big lawsuits – the ones that accuse the firms of accounting malpractice or various federal securities law violations – have been chronicled ad infinitum. The accounting industry’s response to these threats is to ask for liability caps. As if we don’t have enough moral hazard in the financial system with “too big to fail,” the auditors want to institutionalize their insulation from accountability to their clients, the shareholders, with a policy of “too few to pay for their mistakes.”

A Prisoner’s Dilemma: AIG and Goldman Sachs Game Each Other And PwC

I’ve never heard a specific explanation for how PwC could preside over a long running dispute between two of its most important global clients, a dispute that was material to at least one of them, obviously, that had the attention of its highest level partners, and not force a resolution based on consistent application of accounting standards sooner. I’ve been writing almost as long as I’ve been writing here that PwC should resign as AIG’s auditor. Is it not enough that PwC was clearly torn between two clients who held enormous financial sway and lost its independence and objectivity along the way?

The Great American Financial Sandwich: AIG, PwC, and Goldman Sachs

Maybe PwC didn’t stand a snowball’s chance in hell to be a truly independent, objective advocate for shareholders by forcing a true and fair presentation, in all material respects, of the financial position of either AIG or Goldman Sachs and the results of their operations and their cash flows in conformity with accounting principles generally accepted in the United States of America. But is there a truly good excuse for PwC to not have been a preemptive strike force, a beacon, an early warning system for shareholders of the financial Armageddon we faced? They had longstanding, thorough, perfect knowledge of both sets of financial statements.

Defending Koss And Their Auditors: Just Loopy Distorted Feedback

My objective in writing this story was to handily contradict the self-serving defense to the fraud at Koss that’s being served up by Grant Thornton and supported by some commentators. But punching holes in their Swiss-cheese defense is like shooting fish in a barrel.

Are You Gonna Make My Day? The Auditors And SEC Enforcement

The SEC held a news conference to announce several changes and initiatives in their Enforcement Division. Afterward I joined a few select bloggers invited to a special briefing with Robert Khuzami, the Director of the Division of Enforcement.

It’s my contention that the Big 4 and their partners are still pretty lucky, continuing to dodge any truly deadly SEC enforcement bullets.

EY Settles SEC Charges Re: Bally’s Fraud-Lives To Audit Another Day

The SEC accused Ernst & Young of issuing unqualified audit opinions that said that Bally’s 2001 and 2003 financial statements conformed with U.S. accounting rules. Six of the Ernst & Young’s current and former partners agreed to settle SEC accounting violation charges as part of this least two of the EY partners charged, Fletchall and Sever, held leadership positions with the AICPA in the past.

Suing Audit Firms re: Madoff: The Iguana In The Room

Which firms have the most Madoff-related claims? Which audit firm locations are named most often? Which filings do not name an audit firm and why? How many name the international audit network umbrella firm? Shouldn’t they all?

So Much Auditor Litigation Makes For Strange Bedfellows

There’s a heightened probability Deloitte – and the rest of the Big 4 -can end up on both sides of lawsuits with their former and current audit clients.