Would investors still pay for an audit if it weren’t legally mandated? Are regulators and exchanges perpetuating a government-mandated oligopolistic exclusive franchise for the Big 4 and a few additional firms that produces information investors now ignore?
On February 28 the US Justice Department fined Deloitte & Touche LLP $149.5 million for alleged fraud against the government related to its role as the independent outside auditor of Taylor, Bean & Whitaker Mortgage Corp. Also: The damages phase of the FDIC v. PwC case regarding Colonial Bank is set to begin in Washington DC on March 20.
Anthony Canalungo wrote a really interesting article about Herbalife’s financials in Venezuela. Three different MLM companies from the peer group in addition to Herbalife operating in Venezuela and all except for Herbalife are using SICAD 2. What else do these four firms have in common? Auditor PwC.
PwC is scheduled to go to trial for malpractice related to the bankruptcy of SemGroup in August, almost six years later. The SemGroup Litigation Trust, pursuing claims on behalf of the company and its creditors, alleges PwC did a terrible audit. But it’s worse than just lousy auditing, especially if a trial exposes the truth of PwC’s disingenuous defenses.
My American Banker column on Tuesday focused on the risks to banks, their audit committees, and shareholders of an auditor who blows off its regulator. Deloitte’s ongoing conflict with the PCAOB poses the risk of undue scrutiny by other regulators and unwanted publicity to all its clients.
The PCAOB will hold an open meeting on Tuesday, August 16, to discuss a concept release soliciting public comments on ways that auditor independence, objectivity, and professional skepticism could be enhanced, including mandatory audit firm rotation. They are also soliciting comments on their Concept Release for changes to the auditor’s reporting model. I’ve written on these topics many, many times.
I was in Washington DC to attend the March 24 meeting of the new Standing Advisory Committee (SAG) of the new PCAOB. I was surprised twice by a report presented by the PCAOB’s Investor Advisory Group at last week’s meeting. First surprise: Chairman Doty was right. Good people are looking at the issue of auditor effectiveness, especially during the crisis. Second surprise: The report quoted me.
New York Attorney General Andrew Cuomo sued Ernst & Young over their involvement in the Lehman failure. EY was Lehman’s long time auditors and the firm is accused of “permitting Lehman to engage in an accounting fraud.” Hold on tight. It’s going to be a bumpy ride.