Tuesday, March 3, 2009

See No Evil, Speak ...

"Numerous accounting firms missed the alleged fraud at Bernard L. Madoff Investment Securities LLC as they inspected the investment company's books or those of so-called feeder funds that helped steer money to it. As a result, those accountants could now be legally vulnerable to claims that they should have uncovered red flags, according to legal and accounting experts. ... Lynn E. Turner, former chief accountant for the [SEC], said he finds it hard to believe that auditors of so-called feeder funds checked out Madoff's auditor as a way of bullet-proofing their confidence. 'If they didn't,' he said, 'then investors will have to hold the auditor accountable.' ... Others say they had no obligation to check out Mr. Madoff's auditor. They contend their primary role is to make sure the numbers their clients supply add up, not to detect fraud. ... Friehling & Horowitz [F&H] wasn't registered with the [PCAOB]. Nor was it 'peer reviewed,' a system in which auditors check out one another for quality control. David Friehling, the firm's only active accountant, was enrolled in a peer-review program at the [AICPA], but wasn't required to participate because he didn't handle audits, according to the AICPA. ... 'Our audit conformed to all professional standards,' said KPMG spokeswoman Kathleen Fitzgerald. "This is not a KPMG issue,' she said, noting that lawsuits have been filed against many top auditing firms. ... ''PWC was not the auditor for Bernard Madoff Investments, where the alleged fraud occurred,' the Canadian [PWC] affiliate said in a statement. Fairfield [Greenwich Group] is also a defendant in the suit", my emphasis, Ianthe Dugan and David Crawford at the WSJ, 18 February 2009.

I agree, feeder fund CPAs might be liable for Madoff's fraud. Disagreeing with Turner, had the other CPA firms "checked out" F&H, what then? F&H wasn't PCAOB registered? So? KPMG, yeah those guys, "audits" Citigroup. PWC "audits" Satyam, etc., etc., ad nauseum. Peer review, bah humbug. I've mentioned it on 28 April 2008: http://skepticaltexascpa.blogspot.com/2008/04/sec-investors-friend-fiend-2.html. Peer review was an AICPA scam, PCAOB review replaced it for CPAs which audit SEC registrants. Another scam. KPMG Canada must use PWC's "random word generator". Isn't it remarkable how similar KPMG's words are to PWC's comments about the Satyam fiasco, my 4 February 2009 post: http://skepticaltexascpa.blogspot.com/2009/02/silver-blaze-and-cpas.html.

Fitzgerald just admitted F&H is a "top auditing firm". How? By revealing the secret membership requirement: at least one large lawsuit being filed against the firm! Laugh.


Anonymous said...

I love the feeder fund (Fairfield?) that made several hundreds of millions "advising" clients to put their money in Madoff's funds///

They got paid for due diligence... right?

Oh... and the accountants...CYA... on a royal scale...

Junior said...


OUCH. Harsh.

Someone is going to have to take responsibility for this (I vote SEC, let the firms continue acting like morons if the regulatory body in charge of the whole shebang can't even handle it why should the organizations beneath its regulation be held to such a standard? - not to negate any irresponsibility on the part of the auditors...)

SOX 2.0 we cannot have.

Something better must come of this. Otherwise my poor kids are screwed... as are we all...