Tag: Auditors

KPMG Can’t Get Rid of the Countrywide Rash

As you probably remember, Countrywide Financial once owned a lot of shitty mortgages. This wasn’t clear to many of the company’s investors so when the things turned sour, lots of those investors lost boatloads of money and then Bank of America came in to pick up the scraps. KPMG was the auditor of Countrywide and the shareholders sued both companies because, gosh, that’s basically what happens when a bunch of money is lost for no good reason and you had a front row seat for the action. Accordingly, the two firms settled with CTW shareholders last year for $624 million. KPMG, for its part, chipped in $24 million. That’s rumored to be in the ballpark of what John Veihmeyer spends every year on Notre Dame gear, so the firm was probably thinking it got off pretty easy. Unfortunately, things are just getting started since other countries hadn’t had a chance to jump into the mix.


From Zero Hedge:

Norway’s Government Pension Fund, which is another name for its Sovereign Wealth Fund, has just announced it is suing Bank of America for mortgage fraud. Not only that but it is also going after Countrywide, obviously, but far more importantly, is also suing KPGM [sic], the auditor on the Countrywide transaction, and, drumroll, ole’ Agent Orange himself [That’s former Countrywide CEO Angelo Mozilo for those of you not up to speed].

So what, you say? Norway is just some Scandinavian wasteland with a lot of blondes and the occasional psychopath? Not the point!

[J]ust like the US lawsuit spigot opened ever so slowly at first, it is now gushing, and is absolutely certain that every company (ahem insolvent German banks) that ever bought a mortgage from Countrywide, Merrill and Bank of America will serve the local branch of the bank with a summons over the next month.

In other words, this little breakout may turn into a full-fledged epidemic.

Bank Of America’s Legal Woes Go Global After Norway’s Sovereign Wealth Fund Sues For Mortgage Fraud [ZH]
Also see:
The Fund suing large bank in the U.S. for fraud [DN.NO (Beware, the translation is brutal)]

Ernst & Young Aware of This Sino-Forest Situation, Seems Content to Watch It Play Out

Jonathan Weil has a column today on the train wreck that is Sino-Forest, the Chinese-Canadian timber company. In case you need caught up, there have been some questions about the company’s ability to report accurate disclosures and accounting. This led the research firm Muddy Waters to issue a not-so-flattering analysis of the company. Things like “Ponzi scheme” and “investing for the 23rd Century” don’t exactly get people jumping up and down for your company. Ask John Paulson.

Of course Sino-Forest didn’t do this all by themselves. They had credit rating agencies and auditors telling them everything was hunky dory for years and that’s Weil’s point. He reports that Fitch pulled its rating on S-F back in July and S&P finally pulled their rating this week. That just leaves Moody’s but guess who else is still hanging in there? Ernst & Young, baby! They’re still standing behind their audit opinions and showing no sign of budging. And JW is really curious to know who’s going to jump out of this tree first.

One question lingers: Which of the company’s paid opinion merchants will be the last to step aside? Will it be a credit rater? Or will it be the company’s auditor, Ernst & Young LLP in Toronto, which has yet to rescind any of its reports on Sino-Forest’s finances?

So far Ernst looks like the favorite, with only one rating company left in the hunt. Think of it as a contest between giant tortoises to see which one is slower. This time-honored ritual — of market gatekeepers waiting to blow the whistle until long after a scam has been exposed — has become so familiar, we might as well revel in the spectacle.

So these “gatekeepers” Weil speaks of – obviously this includes the Big 4. And it’s true that we’re all used to them waving their arms, screaming “DANGER!” in front of the burning heap that everyone has been aware of for ages (I didn’t say Lehman Brothers. Did you say Lehman Brothers? Who said Lehman Brothers?).

ANYWAY, E&Y should know that they have choices:

Ernst does have options, aside from bracing for the inevitable years of litigation and investigations. It could resign, explain why it is doing so and face criticism for acting too late. It could withdraw its previous audit opinions. It could insist to Sino-Forest’s directors that it be permitted to answer questions from the public about the work it has performed, as a condition of remaining onboard. Or it could hang on in silence, as it’s doing now, and watch its reputation endure more damage.

Could be that this is just another part of E&Y’s strategy. Sit tight while things play out, wait until things get really serious (i.e. bankruptcy, severe economic turmoil, civil charges, etc. etc.) and then come out swinging.

Tree Falls on Sino-Forest, Auditor Can’t Hear It [Bloomberg]

PwC, Crowe Horwath Sued for Colonial Bank Failure

Ed. note: Our permanently ink-stained wench is still struggling with Internet connectivity after a small storm swept through the DC area, so we now present the following post that is republished with permission from Jr. Deputy Accountant.

A-ha! I hate to say I told you so (no I don’t) but, uh, I told you so.

In August of 2009, I caught PwC digging around on my site to find out more about the Colonial Bank failure, a failure which PwC itself oversaw and maybe just participated in (if indirectly, naturally). The year before Colonial’s epic failure, PwC auditors gave the bank the all clear.

“In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of The Colonial BancGroup, Inc. and its subsidiaries at December 31, 2008 and 2007 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America,” read the opinion.

Anyway, fast-forward two years and here we are:

Colonial Bancgroup Inc (CBCDQ.PK) and its trustee filed a lawsuit against former auditors PricewaterhouseCoopers LLC and Crowe Horwath LLP, charging them with accounting malpractice and professional negligence for not catching a fraud that led to the bank’s collapse.

The complaint was filed late on Wednesday in a Circuit Court in Montgomery County, Alabama.

It also accuses the auditors of breach of contract, saying that PwC’s independent audits of its financial statements violated generally accepted accounting standards and served to conceal the seven-year fraud that drained it of $1.8 billion and left it with hundreds of millions of dollars in worthless or nonexistent assets on its balance sheet.

Can someone please tell me why the PCAOB still has a job with this nonsense going on? Furthermore, why does PwC make $13 billion a year soaking its clients with audit fees? And why aren’t the people of the United States suing the shit out of these auditors too? Colonial was the 6th largest bank failure in U.S. history and cost taxpayers $3.8 billion.

Anyone else find it funny how they call the audit service arm “Assurance”? It has nothing to do with discovering fraud or giving investors actual peace of mind that the statements they are looking at are, in fact, prepared in accordance with GAAP. Rather it is a mafia-style pay-to-play protection ring that offers clean audit opinions in exchange for cash.

Vomit. All over Dennis Nally’s impeccably polished wingtips.

Today in Spineless Audit Committees: Morris Publishing

As we’re all aware, the Audit Committee is supposed to be one of the key tools in corporate governance. If management is messing around with financial reporting, disclosures or there’s trouble with the auditors, the audit committee should be all over it like stink on a monkey. The audit committee also is in charge of appointing/firing the auditors to prevent management from throwing out auditors who tell them things that they don’t like.

Apparently this is not the case with Atlanta-based Morris Publishing. In a recent 8-K, the company explained that they fired Deloitte and more or less admitted that their audit commorthless:

Dismissal of Auditor.

On August 17, 2011, Morris Publishing Group, LLC (“Morris Publishing”, “we”, “our”, “us”) dismissed Deloitte & Touche LLP (“D&T”) as its independent registered public accounting firm.

The decision to allow our management, at its discretion, to change auditors had been unanimously approved by our Board of Directors and its Audit Committee on July 18, 2011. [this is my emphasis]

The audit reports of D&T on our consolidated financial statements as of and for the years ended December 31, 2010 and December 31, 2009, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, except:

(A) The audit report as of and for the year ended December 31, 2009 included the statements, “As discussed in Note 6 to the consolidated financial statements, on January 19, 2010 the Company filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On February 17, 2010 the Bankruptcy Court entered an order confirming the plan of reorganization which became effective after the close of business on March 1, 2010.”

(B) The audit report as of and for the year ended December 31, 2010 included the statement, “As discussed in Note 10 to the financial statements, the accompanying 2009 financial statements have been restated to correct a misstatement.”

During the two fiscal years ended December 31, 2010 and December 31, 2009, and during the subsequent interim periods through June 30, 2011, there were no (1) disagreements with D&T on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to the satisfaction of D&T would have caused D&T to make reference in connection with their report to the subject matter of the disagreement, or (2) “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K; except as follows:

(A) We reported in April 2011 that management discovered errors in the accounting treatment for debt extinquishment such that our financial statements as of and for the year ended December 31, 2009, and the interim periods ended March 31, 2010, June 30, 2010 and September 30, 2010, should no longer be relied upon, and that the correction of these errors will be reflected within our Form 10-K for 2010 and subsequently filed interim reports; and

(B) as reported in our Form 10-K for the year ended December 31, 2010, we identified a material weakness in our internal control over financial reporting with respect to the operational effectiveness of controls in the area of accounting for complex non-recurring transactions. As a result of this material weakness, we concluded that our disclosure controls and procedures were not effective as of December 31, 2010.

We provided D&T with a copy of this Current Report on Form 8-K, and requested that D&T furnish us with a letter addressed to the Securities and Exchange Commission stating whether D&T agrees with our statements made in response to the disclosures required by Item 304(a)(3) of Regulation S-K. We subsequently received the requested letter, and a copy of such letter is filed as Exhibit16.1 to this Current Report on Form 8-K.

So it appears that Morris Publishing is definitely one of those clients. The kind that makes you wish that you had chosen a career that’s less likely to make you want to jump out of a window. Anyway, the aforementioned letter from Deloitte states the following:

We have read Item 4 of Morris Publishing Group LLC’s Form 8-K dated August 16, 2011, and we have the following comments:

1. We agree with the statements made in paragraphs 1 and 3 through 12.

2. We have no basis on which to agree or disagree with the statement made in paragraph 2.

In other words, Deloitte is saying, “Yes, we agree that your financial reporting is a mess and that your internal controls are awful. And if you want to admit that your audit committee is a bunch of lackeys for management, we’re not going to stop you.”

8-K [SEC]
Deloitte Letter [SEC]

Today in Sketchy Chinese Company News: Ernst & Young Suspends Audit of Zungui Haixi

It’s been quite the year for the Chinese-based, reverse-merger clients of accounting firms. There have been curious press releases, audit workpapers held hostage, and the run-of-the-mill blowing off of auditor recommendations among other things. With all that, you probably figured the fun was over.

Not so! The latest in China-doesn’t-really-know-what-the-hell-it’s-doing news is the report that Ernst & Young has walked out on Zungui Haixi, an athletic footwear and apparel company listed in Canada. Why? Well, it’s not really clear but it sounds like Zungui has some explaining to do:

Zungui said auditor Ernst & Young LLP has advised its board that its has suspended its audit for the year ended June 30, 2011, until the company “clarifies and substantiates its position with respect to issues pertaining to the current and prior year”.

Ernst & Young recommended that the issues identified be addressed by an independent investigation, the company said in a brief statement that did not provide any details on the issues.

As we all know, “issues” could be just about anything from missing cash, to a CFO resigning. Hopefully it’s nothing quite so serious and the crack squad of investigators assigned to the task will get to the bottom of it and not wait for Roddy Boyd to pick it up.

Zungui Haixi shares tumble after E&Y suspends audit [Reuters]

Who Has Thoughts on Mandatory Auditor Rotation?

Because the PCAOB is giving you until December 14th to make your views known.

“One cannot talk about audit quality without discussing independence, skepticism and objectivity. Any serious discussion of these qualities must take into account the fundamental conflict of the audit client paying the auditor,” said PCAOB Chairman James R. Doty.

“The reason to consider auditor term limits is that they may reduce the pressure auditors face to develop and protect long-term client relationships to the detriment of investors and our capital markets,” Chairman Doty added.

Don’t fret anti-rotaters, the Board did invite everyone to weigh in on the idea that they “should consider a rotation requirement only for audit tenures of more than 10 years or only for the largest issuer audits.”

[PCAOB]

Former Big 4 Auditor Who Took a Break Needs To Get Back In the Game

Sometimes, life is more important than work. For this former Big 4 auditor, a little life situation forced him out of the game before he got his 2 years and now he’s trying to elbow his way back in.

Hi Adrienne,

I worked in big4 audit for just over a year, but I had to leave the firm soon after that for family reasons (to care for a loved one). It’s been 2 years since then, and I haven’t worked at all (my choice). The good news is that I just passed 3 of 4 sections of the CPA, and I expect to finish it up this month.

The thing is – I need help getting back into the work world now. Do you have any tips for getting back “in the game,” so to speak?

If it helps, I’m really looking for a huge change of pace from big4 auditing – something where there’s little travel, and that’s not nearly as stressful as Big4. I think I would like something where there’s only a one or a few persons I’m reporting to, and where the nature of my work is much more technical/specialized. Something that involves technology would be a big plus (I love Info Tech, and I’m good with it). I’ve looked at private accounting/finance-type positions, but it seems many of them want a minimum of 2 years of working experience. Having Big 4 is great experience, of course, but is 1 year worth much? I also worry about what they will think of a 2 year gap on my resume.

I know a few small mom&pop-type tax CPA firms I could work for, but I worry the work-life balance in these jobs isn’t going to be too much different than Big4. I am also considering government positions.

Do you have any tips for someone like me?

Thanks very much.

~ newbie/CPA2be w/ ONLY 1 year of entry-level big4 audit experience

First off, it depends on where you are. If you’re in the middle of bumfuck nowhere, your options are limited (as I’m sure you’re aware) but if you’re in a major market, you’ve got the option to start networking. Like we’ve advised other folks, you can do this by hitting events held by your state society of CPAs, the AICPA, or other professional organizations.

Second, you’ve got a great excuse if anyone actually asks what you’ve been up to lately. Be honest but not too upfront about this; meaning you don’t have to badger HR about it but have a good explanation ready if you are asked.

You are correct that smaller firms aren’t much different than Big 4 in terms of the amount of work you’re going to be doing, the only difference might be travel. It sounds to me like you have some options, so I’d start by exercising those. Depending on how long you took off to care for your sick family member, you may not have to put in a full two years to get your license.

Based on what you’re looking for, I would suggest seeking out a small (not mid-tier) firm with a couple partners, not some multi-national with tons of clients. If you love IT, try to find someone already in this area willing to take you under their wing, or at least give you some good guidance from their perspective.

I’m not too worried about you, sounds like you have it figured it out and just wanted us to confirm that you aren’t completely fucked. You aren’t.

Comp Watch ’11: Deloitte Auditors To Get Enlightened About Results in a “High-Performance Culture”

This just in:

To All U.S. Audit staff,

Please join me on Friday, August 5 from 2:00pm – 3:15pm ET for a webcast for you, our staff, where we will discuss our Audit compensation strategy to reward for results in a high-performance culture. During the call, we will also share what you can expect for this year’s process and overall timeline. (Webcasts are being held for all Audit professionals by level to allow sufficient time for Q&A.)

I look forward to speaking with you.

Thank you.

Rick Rayson
Chief Talent Officer
Deloitte & Touche LLP

Get excited, people.

Ernst & Young Is Really Wishing They Hadn’t Blown Off That Lehman Brothers Whistleblower

FT Alphaville found this notable quote from District Judge Lewis Kaplan’s opinion (whole thing after the jump):

The TAC alleges that Lee told E&Y in June 2008 “that Lehman moved $50 billion of inventory off its balance sheet at quarter-end through Repo 105 transactions and that these assets returned to the balance sheet about a week later.” Assuming that is so, E&Y arguably was on 308 notice by June 2008 that Lehman had used Repo 105s to portray its net leverage more favorably than its financial position warranted, a circumstance that could well have resulted in the published balance sheet for that quarter being inconsistent with GAAP’s overall requirement of fair presentation. Accordingly, the TAC adequately alleges that E&Y misrepresented in the 2Q08 that it was “not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles” notwithstanding Lee’s disclosure to it.


“Lee” you may remember is Matthew Lee Lee, the Senior VP for Global Balance Sheet and Legal Entity Accounting who also said this about E&Y’s reaction to his warning on Repo 105:

They certainly didn’t support it. On the Repo 105 issue, they knew about it; they did not appear to know that the number was so large.

Ouch.

lehmanruling

(UPDATE) Ernst & Young Auditor Area Man Takes His Crush for Co-worker Ernst & Young Auditor to Craigslist Missed Connections

Don’t you just love missed connections? Maybe you’re more of a casual encounters person but there’s something to be said for someone that is experiencing such infatuation that dropping a post on Craiglist seems like the best thing to do. Of course, it’s another thing entirely when you are infatuated with someone at work and you conclude that your best way to tell them that they are the most beautiful creature on Earth is by posting on missed connections. Apparently, UPDATE: some dude crushing on an Ernst & Young auditor did just that.

Dating Fails: Dating, Breakup, Boyfriend, Girlfriend - Office Romances Don't Count Online, Right?
see more

Okay, a few notes:

1. For a lot of reasons, personal and professional, there’s no way I can say anything to you. – What exactly are the “personal” reasons? You can’t speak in coherent sentences? You have awful body odor? You’re actually a serial killer? As for “professional” reasons, we all know that auditors are banging auditors all over the place (SEE UPDATE BELOW), so if you’re simply saying that this can’t happen because it’s against your professional morals then fine but other people around you are getting busy and you will not.

2. I can’t believe you don’t hear that all the time. You probably do. – You’re right. She probably does hear it all the time. But not from anonymous people on the Internet.

3. I wish I could tell you and not come across as a sleaze! – You’re not “coming across,” broski. You’re already there.

This was posted in NYC (expired now) so maybe we can track this guy down and help him with his game.

UPDATE:
After reader input and discussing it with my partner in crime, it’s clear that this is a client leering at the E&Y auditor and AG and others are postulating that our Craiglist creeper is either married or in a committed relationship. If this is the “personal reasons” he spoke of, it’s far less interesting and funny than some kind of social anxiety disorder that renders him a stuttering love-sick fool. But it does begs several societal questions among them: 1) does posting a missed connection constitute cheating? or 2) do we applaud his self-control (until he gets home of course). Discuss.

Some Internal Auditors Spent £5,000 on a Bongo Drumming Team-Building Event at a Burlesque Club

Building rapport on a team is important. Getting to know the guy/girl next to you in the trenches makes for a stronger unit and the willingness to help each other out when necessary. This can be accomplished in a number of ways. The occasional happy hour. A pool party. And yes, sometimes team building can occur in more tantalizing environment. But with musical instruments? Apparently.

Internal auditors from the Department of Communities and Local Government spent almost £5,000 on a bongo drumming team-building event held at a burlesque club. The vitriolic exposé from the Conservative Party said the department under the Labour government “policed wasteful spending”. Apparently the club’s dancers, Lady Beau Peep and “showgirl sensation” Amber Topaz, were not present during the event.

Bongos help internal auditors spend £5,000 [Accountancy Age]

Who Wants a $10,000 Scholarship from the PCAOB?

Any accounting students that happen to have an above-average aptitude for accounting or auditing will be happy to know that the PCAOB has been given the go-ahead to award fifty-two $10,000 scholarships for the 2011-2012 academic year. There are some conditions, however, including:

• Be enrolled in a bachelor’s or master’s degree program in accounting
• Demonstrate interest and aptitude in accounting and auditing
• Demonstrate high ethical standards
• Not be a PCAOB employee or a child or spouse of a PCAOB employee

In addition, we think it makes sense that anyone with “Ernst” or “Young” in their name will be forced to undergo a more rigorous examination of their qualifications. Also anyone named “Arthur Andersen” should be immediately ineligible. If you have other conditions you’d like to see attached to these scholarships, leave them below.

And here’s the list of schools:
Brigham Young University
Central Washington University
CUNY Bernard M Baruch College
DePaul University
Eastern Michigan University
Eastern University
Fairfield University
Florida State University
George Washington University
Georgia Southern University
Golden Gate University
Hope College
Indiana University-Purdue University-Indianapolis
Indiana Wesleyan University
Kean University
Lewis University
Louisiana State University and A & M College
Michigan State University
Middle Tennessee State University
Missouri State University
North Carolina State University
Northern Illinois University
Nova Southeastern University
Rhode Island College
Tulane University
University of Alabama
University of Colorado-Denver
University of Connecticut
University of Florida
University of Georgia
University of Hartford
University of Illinois at Chicago
University of Illinois-Urbana-Champaign
University of Louisiana at Lafayette
University of Maryland-University College
University of Michigan-Ann Arbor
University of Minnesota-Twin Cities
University of Missouri-Columbia
University of North Carolina-Charlotte
University of North Carolina-Greensboro
University of North Texas
University of Notre Dame
University of Oregon
University of Pittsburgh
University of Southern California
University of Southern Mississippi
University of Texas at Austin
University of Texas at Dallas
University of Virginia
University of Wisconsin-Eau Claire
Walsh College of Accountancy & Business
Weber State University