"In 2002, worried about growing financial scandals, the audit firm of Ernst & Young [E&Y] set out to identify its riskiest clients and force them to comply with accounting rules. The effort backfired. On Thursday, the firm agreed to pay an $8.5 million fine to the [SEC] for its work in auditing the books of Bally Total Fitness. The firm agreed to an order that it cease and desist from violating securities laws. ... 'It is deeply disconcerting that partners, even at the highest levels of E&Y, failed to fulfill their basic obligations to the investing public by not conducting proper audits,' said Robert Khuzami, director of the SEC's enforcement division. 'This is a sharp reminder to outside auditors that they must carry out their duties with due diligence,' he added. The $8.5 million settlement, one of the highest ever paid by an accounting firm,' 'reflects the seriousness of their misconduct.' ... A veteran SEC official, speaking on condition he not be named because he had not checked records for the entire history of the commission said he knew of no previous enforcement cases in which a partner of a major firm was cited for his actions as head of a national office", Floyd Norris at the NYT, 18 December 2009, link: http://www.nytimes.com/2009/12/18/business/18audit.html.
Junior at Junior Deputy Accountant, 18 December 2009, notes, "shouldn't [E&Y] have already identified their riskiest clients": http://www.jrdeputyaccountant.com/2009/12/ernst-young-gets-its-audit-clients-in.html. Of course E&Y did. So? Who cares if a client is "risky"? I've never understood the concern. If a CPA knows what he is doing and is thorough, what difference does it make if a client is "risky"? The issue is: are you willing to tell the client, "go to hell. Take your business somewhere else". What E&Y calls "risky" clients are likely those E&Y knew had "cooked books" and E&Y lacked the cojones to "rat 'em out". Few if any clients are "risky" to a competent CPA, despite the nonsense the Big 87654 and academics peddle. This settlement is just part of the SEC's continuing Big 87654 protection racket.
This settlement is another joke. The SEC fined Joe Jett $8.4 million for complying with Kidder Peabody's accounting manual while E&Y pays $8.5 million. See my 12 September 2007 post on Jett and 20 February 2009 comments on Khuzami's appointment: http://skepticaltexascpa.blogspot.com/2007/09/gross-injustice.html and http://skepticaltexascpa.blogspot.com/2009/02/sec-at-large.html.
2 comments:
Well...
"... the firm [E&Y] agreed to pay an $8.5 million fine to the [SEC] for its work in auditing the books of Bally Total Fitness..."
Bally... hahaha... low hanging fruit...
The SEC should look at AIG and Price Waterhouse and what happened there... weren't there restatements in 2005? And then the latest stuff that the Washington Post reported?
All banks and their auditors that had SIVs should be examined.
And there is plenty more behind the "Level 3" curtain...
I've always contended that just like the president of the United States, audit firms should have "term limits" for their clients. Bonds get too close and the firms, like senators, are more looking to get re-elected than they are trying to help the average investor see accuracy.
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