As per a report appearing in Reuters, Ernst & Young to pay $8.5 mln to settle SEC regulatory charges of issuing unqualified audit opinion relating to a fraud.
The SEC accused the accounting firm of issuing unqualified audit opinions that said that Bally Total Fitness Holding Corp's 2001 and 2003 financial statements conformed with U.S. accounting rules.
According to the SEC, Bally engaged in fraudulent financial accounting from 2001 through 2003, including prematurely recognizing revenue and improperly deferring costs. Those accounting schemes overstated income and inflated the company's stock price, the SEC said. Bally, which emerged from bankruptcy in September, was charged with fraud in 2008.
6 comments:
I am surprised to know that the senior management of Bally was composed of former Ernst & Young audit partners. Is this an example of how a Big-4 firm retains a client ?
We have a very recent example of the biggest scam at Satyam and the involvement of Pricewater House in India. In case you have followed it I look forward to your inputs.
I agree with Mr. Shukran Alakbarov, that perpetration of fraud can be avoided by listed companies by strictly following SOX and Auditing Standards.
I did not say that Satyam had senior management who were ex-PWC. What I gave was another example of the involvement of one of the Big-4 (PWC) in the Satyam scam. It put a big question mark on the role of its auditor. What has happened to Satyam, PWC and their brand equity in India and globally over the last one year is known to all.
This is not PwC’s first brush with corporate scams in India – or for that matter abroad. Earlier, the DSQ Software and Global Trust Bank scams had the same thread running through them – PwC (or Lovelock Lewis, also part of the same network) were the statutory auditors for both.
For more updates you can read "The Double Life Of Ramalinga Raju" by Kingshuk Nag, resident editor of the Hyderabad edition of The Times of India.
In India there is no foolproof solution for the guilty. Why? That is a different story altogether which I would like to some other time.
I did not say or imply that auditors in general are a common thread. But I clarify to you and all the readers here that PWC in particular is the common thread in the DSQ Software, Global Trust Bank and Satyam scams.
The brand image of auditors and credit rating agencies going down drastically is a corollary of what has happened. Can you explain what big budgets for advertising and marketing got to do with it?
We must start penalizing very strongly in India. We Indians have a bad habit of justifying a fraud however big it is as some one's fault. So what is the problem? Nothing. Things made so simple isn't it?
The Indian system, establishment would be a better word, that includes all the regulators including ICAI, loves scapegoats. All need to be put behind the bars for a very long time. Who with power likes that? So there is bit of a discussion in the media and every case dies its natural death with the passage of time.
Yes we are the most tolerant country. We have been taught to.
I sometimes wonder whether I am doing the right thing. Some people in our profession, more particularly many in the bigger audit firms and the Big-4 would not like me spoiling their party over and over again. I hardly get any response from them in the things I discuss on various platforms. But I do not really have any other option than to highlight what is happening.
We look forward to young people from Gen-X and Gen-Y to bring the change and run ICAI in a professional manner by deed and not word of mouth as is now being done.
One of my friends asked, "Only due to a few big boys who have sold out, isn't the entire fraternity affected?"
ICAI is supposed to answer this question and take steps to punish the guilty and see to it that these things do not disgrace the profession further. It should be run professionally. For this to happen the office bearers at the Central and Regional Councils should be made accountable to the members who elect them. But I am sorry to say I do not see this happening in the near future.
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