Tag: Auditors

Chinese Gold Company ‘Respects’ Deloitte’s Decision to Kick Them to the Curb

Your auditor-of-a-Chinese-company-resignation news du jour:

Deloitte Touche Tohmatsu Ltd , the world’s largest accounting and consulting firm, has resigned as auditors of Hong Kong-listed Real Gold Mining , more than four months after the Inner Mongolian miner was reported to have filed conflicting accouting [sic] reports.

Real Gold, which halted trading in its shares on May 27. is under investigation by the Securities and Futures Commission for corporate governance breaches. The miner’s announcement to the Hong Kong stock exchange late on Thursday said it was looking for a replacement for Deloitte, which resigned on October 12.

“The company is disappointed that Deloitte has decided to resign at this time but respects its decision,” the firm said.

Deloitte resigns as auditors of China gold firm [Reuters]

New Jersey Hasn’t Forgiven Ernst & Young for the Whole Lehman Brothers Thing

I mean, you know how it is, when you lose $192 million. It’s a tough thing to forget. The Journal reports that the Garden State has renewed its lawsuit against E&Y saying “Those review reports were false, as E&Y knew or should have known that Lehman’s quarterly financial statements were not prepared in accordance with [GAAP].” When reached for comment, E&Y spokesman Charlie Perkins’s voice was barely audible on a nearly worn out tape recording, “Lehman’s demise was caused by the global financial crisis that impacted the entire financial sector, not by accounting or financial reporting issues.” Wouldn’t it be nice if Chuck had Nick DeSanto sing the statement? With a rock accompaniment? At least it would liven up this story again. [WSJ]

PCAOB Officially Proposes That Audit Firms Name Names

For some time now, the PCAOB has been talking about making audit partners famous (at least to investors that are paying attention) in ways that they aren’t too thrilled about. Earlier today the Board issued a proposal for comment that will do just that.

The proposed amendments would:

• require registered public accounting firms to disclose the name of the engagement partner in the audit report,
• amend the Board’s Annual Report Form to require registered firms to disclosgagement partner for each audit report already required to be reported on the form, and
•require disclosure in the audit report of other accounting firms and certain other participants that took part in the audit.

So if you can consider yourself an astute observer of auditing policy and regs, they’d love to hear your thoughts. However, it would be greatly appreciated if you didn’t take your cues from the FASB letters and kept things constructive.

All of the Board Members made statements, including PCAOB Chairman Jim Doty (full statement on page 2) who sees this latest proposal as good sense:

I fail to see why shareholders in BNP Paribas, listed on the Euronext Paris exchange, should be able to see the name of the engagement partner in the audit report, but shareholders in Citigroup, listed on the New York Stock Exchange should not. Indeed, the names of engagement partners for some European companies that are listed on the NYSE are disclosed in U.S. filings. Why are shareholders in France Telecom to be favored over shareholders in AT&T?

And then there’s Steven Harris’s statement (in full on page 3). Harris, who is known to speak frankly about auditors, finds the proposal okay enough but would really like to see the audit partners’ John Hancocks:

While I support an identification of the engagement partner, I continue to strongly support, and would have preferred, a requirement for the engagement partner to actually sign his or her name on the audit report. My views, which I stated when the Board last publicly discussed the issue in July 2009, have not changed. Very fundamentally, I believe that nothing focuses the mind quite like putting one’s individual signature on a document.

And for good measure, he threw in this:

Many find it ironic that auditing firms in the United States, whose business is providing assurance about the transparency provided by others, resist publicly providing their own financial statements. There is no apparent reason that the auditing firms that act as gatekeepers to our securities markets should not be as transparent to investors as the companies they audit.

If you agree with Mr. Harris and happen to have a copy of your firm’s financial statements, feel free to pass it along. Or if you’d rather not wait to make your thoughts known on the Board’s proposals, you may drop them in the comments below.

Doty Statement on Transparency Proposal

Harris Statement 10-11-11

Is This Ernst & Young Auditor the Next Character on Glee?

I don’t watch Glee. Hell, I don’t even have TV. I did flip through the GQ spread with Lea Michelle and Dianna Agron but otherwise, I’m completely unfamiliar with any of the characters on the show. ANYWAY, I hear it’s popular. It’s so popular that regular people want to be characters on the show as overblown versions of themselves and are submitting auditions for a chance to do so. One of these regular people is Nick DeSanto, an auditor at Ernst & Young.

We can’t embed Nick’s audition video from the Glee Project web page but we did find his YouTube channel so we can give you idea of his talent:


More about Nick – he worked for a couple of years at McGladrey before joining E&Y’s FSO Media & Entertainment group, where he’s been for about a year. We spoke to him over email and by phone (he “visit[s] GC almost every day”) and that this audition is his first stab at breaking into showbiz. Can you imagine if he had been involved with the In a JIT project? His singing career would already be on the fast track, winning Tonys and such.

So go over and support him at his Glee Audition page by liking his page if you feel so inclined. And even if you don’t feel the urge, go and like/vote for him anyway. Just because your dreams won’t come true, doesn’t mean you can’t support someone who’s trying to do something to achieve theirs.

Deloitte Resents the Notion That They Should Have Known That Taylor, Bean & Whitaker Was a Massive Fraud

As we mentioned briefly, Deloitte has been sued for $7.6 billion by the bankruptcy trustee of Taylor, Bean & Whitaker and Ocala Funding, LLC. If you’ve never heard of Taylor, Bean & Whitaker then check out Jr. Deputy Accountant who’s been all over it since the Feds starting kicking down the doors. Long story short – TBW was a giant fraud perpetrated by its management, Colonial Bank owned a lot of TBW’s mortgages, Colonial failed, Bank of America bought up a bunch of the mortgages, Fannie Mae says they’re owed money, CHRIST, it’s a mess.

Anyhoo, Steven Thomas, who is known for suing the pants of Big 4 firms (and BDO!), is the lead attorney for the plaintiffs and it sounds like the age-old story of auditors BEING COMPLETE IDIOTS:

“Deloitte missed this fraud because it simply accepted management’s conflicting, incomplete and often last-minute explanations of highly-questionable transactions, even though those explanations made no sense and were flatly contradicted by documents in Deloitte’s possession,” one of the lawsuits says.

Of course Deloitte isn’t amused by this, as Deloitte spokesman Jonathan Gandal’s statement attests:

Gandal said the blame for the fraud and losses should rest squarely on Taylor Bean, Ocala Funding and Farkas. “The bizarre notion that his engines of theft are entitled to complain of injury from their own crimes and to sue the outside auditors they lied to defies common sense, not to mention the law,” Gandal said on behalf of Deloitte.

If this statement strikes you as a little confusing, then you’re not alone. First off, when Mr. Gandal is referring to the “the law” he’s probably referring to this. In less legalese, basically what Deloitte is saying is that Lee Farkas and his merry band of crooks are the ones responsible for this shitshow not the Green Dot and therefore, this whole thing is ludicrous. I mean, come on guys, what could a firm that just reported nearly $29 billion in revenue could possibly have done differently? Crooks are just far too smart far auditors. Just ask one.

CFTC Didn’t Think Too Much of McGladrey’s Audit of One World Capital Group

They were so unimpressed with it, in fact, that they are fining the firm $900,000 and partner David Shane $100,000 to settle up.


Mickey G’s issued an unqualified audit opinion for One World Capital Group’s 2006 financial statements and also stated that the company’s internal controls were just fine and dandy. Neither of these things turned out to be true. And when you read the CFTC’s press release, you really have to wonder if anyone was really auditing this company:

[T]he order finds that One World’s 2006 financial statements were materially misstated in various ways including: (1) the 2006 Statement of Financial Condition states that liabilities payable to all customers were over $6.9 million, when in fact information available in One World’s records showed that it may have owed at least $15 million just to forex customers alone, for whom One World served as the counterparty; and (2) the 2006 financial statements materially misstated the nature of One World’s business by failing to reflect that One World served as the counter party to its forex customers for over 90 percent of its business, according to the order.

In addition, McGladrey failed to report material inadequacies in One World’s accounting system and internal accounting controls, including the lack of a customer ledger, and an accounting system that did not properly identify the number of forex customers or the amount of customer liabilities, according to the order. These material inadequacies reasonably could, and did, lead to material misstatements in One World’s 2006 financial statements, the order finds.

No punch and cake for anyone after this fiasco.

[via CFTC]

Someone Is Curious About All Those KPMG Employees Working on General Electric’s Taxes

You may remember earlier this year when The New York Times broke a little story about General Electric’s tax savvy ways and the best tax law firm the universe had ever seen (aka the GE tax department).

The report�������������������� href=”http://www.goingconcern.com/2011/03/jon-stewart-reacts-to-ges-tax-savviness/”>a few people to get bent out of shape because the Times said GE was enjoying $14.2 billion in profit while “claim[ing] a tax benefit of $3.2 billion.” What that “benefit” really entailed was a mystery but many people jumped to the conclusion that it was a “refund” and ProPublica (possibly a little peeved that they got scooped) tried to set the record straight on the Times story.

Despite all the back and forth, everyone was pissed at GE. The company lost a Twitter joust with Henry Blodget and then a bogus press release went out claiming the company was returning the “refund” of $3.2 billion and the Associated Press ran it. Slightly awkward.

Francine McKenna also did a write-up on KPMG’s role in this little soap opera, as the firm has been the auditor for GE since Bill Taft was maxing out the White House bathtub.

The latest twist comes from a tip we received earlier about a “Preservation Notice” sent to all KPMG employees yesterday from the firm’s Office of General Counsel (“OGC”).

URGENT TARGETED PRESERVATION NOTICE: GENERAL ELECTRIC’S LOAN STAFF ARRANGEMENTS
Please be advised that until further notice from KPMG LLP’s (KPMG or firm) Office of General Counsel (OGC), you are hereby directed to take all steps necessary to preserve and protect any and all documents created or received from January 1, 2008 through the date of this Notice relating or referring to the loaning, assignment or secondment of tax or other professionals to General Electric Company and its direct and indirect subsidiaries, affiliates and divisions (collectively “General Electric’s Loan Staff Arrangements”).

As Klynvedlians know, these preservation notices come out so often that you barely even notice them. When you do notice them is when the partner in charge of your team informs you about it before it hits your inbox. What follows is basically the biggest CYA exercise you’ve ever seen. They roll in giant dumpsters and every last scrap of paper you’ve ever written on gets throw in and eventually it gets shipped off to OGC. Your life doesn’t really change all that much other than you’re not allowed to delete another email EVER. At least that’s how I remember it.

ANYWAY, this notice seems a little different. Why exactly? Here’s a excerpt from McKenna’s post:

In defiance of [Sarbanes-Oxley] provisions, KPMG – GE’s auditor – provides “loaned staff” or staff augmentation to GE’s tax department each year. These “temps” perform tasks that would be otherwise the responsibility of GE staff. Sources tell me KPMG employees working in GE tax have GE email addresses, are supervised by GE managers – there is no KPMG manager or partner on premises – and have access to GE employee facilities. They use GE computers because the software required for their tasks is GE proprietary software.

This type of “secondment” to an audit client is never allowed. KPMG should know better.

YEESH. So any documents going back to January of 2008 that relate or refer to someone being assigned under this allegedly dubious arrangement must be preserved. You don’t have to be John Veihmeyer to know that’s a METRIC ASSTON of documentation. It’s not that GE’s tax needs are seasonal; they’re more like “perpetual” or “infinity times infinity.” A company with the best tax law firm already in house that also has an arrangement with a their auditor to throw a few more people at the problem indicates that they are working on this shit 24/7. For KPMG, it amounts to a nice little revenue stream and it keeps lots tax staff busy throughout the year.

But what caused the notice? That’s the question. Our tipster speculated that the PCAOB and SEC might be up to something but per standard operating procedure, neither will confirm nor deny the existence of any investigation or inquiry. KPMG spokesman George Ledwith did not respond to an email seeking comment.

Like we stated previously, these preservation notices are a dime a dozen but because this one deals with General Electric and presumably their tax compliance it qualifies as outside the norm. If you’re in the know or know of someone in the know or have anything else to add, email us or comment below.

Terrible Auditor Really Good at Staying Out of Jail

Bernie Madoff’s auditor – and thereby, the worst auditor ever – David Friehling has had his sentencing delayed for the fourth time.

Apparently he is still “cooperating with federal investigators” which leads some to believe that he might be giving them the lowdown on the Madoffs’ tax returns but really he probably is just trying to convince someone – ANYONE – to give back his beloved CPA. [Lohud via Forbes]

PCAOB, Possibly Fed Up with China’s Stonewalling, Goes After Some Low-Hanging Fruit

The Public Company Accounting Oversight Board today announced a cooperative agreement with the Financial Supervisory Authority of Norway for the oversight of audit work performed by public accounting firms that practice in the two regulators’ respective jurisdictions. “With this agreement, Norway’s FSA and the PCAOB are joining forces to improve audit quality and protect investors,” said PCAOB Chairman James R. Doty. “I am pleased that the PCAOB is continuing to make progress in overcoming the obstacles that have in the past prevented PCAOB inspections in Europe.” [PCAOB]

Audit Partners Are About to Get Famous

But probably not in ways they would prefer:

In a recently updated standard-setting agenda, PCAOB Chief Auditor Marty Baumann says the board is working on the proposal to address concerns about audit transparency. The board published a concept release in July 2009 that asked for feedback on whether the engagement partner should be required to sign the audit report. Based on feedback to that release and subsequent discussions with the board’s advisory groups, the PCAOB is preparing a new requirement for audit firms to say in their audit reports which engagement partner at the firm supervised the audit and who from outside the audit firm participated in the audit.

PCAOB Plans Rulemaking on Identifying Auditors [CW]

SEC Not Amused By Deloitte’s Failure to Produce Documents Related to Company That Held Their Audit Workpapers Hostage

Remember Longtop Financial Technologies? Deloitte resigned as auditors of the Chinese company back in May after LFT took some actions that were, shall we say, unusual for an audit client. Among them, “interference by certain members of Longtop management in DTT’s audit process; and […] the unlawful detention of DTT’s audit files.” And there may be some financial statement fraud going on, to boot. What’s even slightly weirder is Deloitte’s resignt to Longtop’s Audit Committee that laid out the specifics:

[A]s a result of intervention by the Company’s officials including the Chief Operating Officer, the confirmation process was stopped amid serious and troubling new developments including: calls to banks by the Company asserting that Deloitte was not their auditor; seizure by the Company’s staff of second round bank confirmation documentation on bank premises; threats to stop our staff leaving the Company premises unless they allowed the Company to retain our audit files then on the premises; and then seizure by the Company of certain of our working papers.

Right. The auditors-almost-taken-hostage situation. Quite a doozy, this one. Based on the history between Deloitte and Longtop, one would think that Green Dot would jump at any chance to exact a little revenge on these shady bastards. NOPE!


From the crack squad at the SEC:

The Securities and Exchange Commission today filed a subpoena enforcement action against Deloitte Touche Tohmatsu CPA Ltd. for failing to produce documents related to the SEC’s investigation into possible fraud by the Shanghai-based public accounting firm’s longtime client Longtop Financial Technologies Limited.

According to the SEC’s application and supporting papers filed in U.S. District Court for the District of Columbia, the SEC issued a subpoena on May 27, 2011, and D&T Shanghai was required to produce documents by July 8, 2011. Although D&T Shanghai is in possession of vast amounts of documents responsive to the subpoena, it has not produced any documents to the SEC to date. As a result, the Commission is unable to gain access to information that is critical to an investigation that has been authorized for the protection of public investors.

“Compliance with an SEC subpoena is not an option, it is a legal obligation,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The ability of the SEC to conduct swift and thorough investigations requires that subpoena recipients promptly comply with that legal obligation. Subpoena recipients who refuse to comply should expect serious legal consequences.”

Maybe the email/hand-written letter sent by carrier pigeon (whatever method of communication the Commission is using these days) got lost OR maybe no one at Deloitte Shanghai was in the translating mood that day but it seems slightly strange that Deloitte would just blow this off especially since Longtop screwed them 70 ways to Sunday. Of course these documents could show that Deloitte was really a bunch of pansies and we’re letting LFT run the show until the gross negligence got to the point that they simply couldn’t ignore it anymore. It’s anybody’s guess, really.

UPDATE: The Journal reports that Deloitte claims to be “caught in the middle of conflicting demands by two government regulators,” which could be seen as extremely convenient.

SEC Files Subpoena Enforcement Action Against Deloitte & Touche in Shanghai [SEC]
Court Filing [SEC]
Also see: S.E.C. Asks Court to Force a Release of Papers From China [NYT]