Even more auditing scandals


Private Eye, in edition #1347 (Aug 2013), reports that the British Accountancy and Actuarial Discipline Board is investigating the accounting firm RSM Tenon and its former auditor PwC.

Tenon which styled itself as "a dynamic leading accountancy and advisory firm" with both corporate and government clients, never recovered from January 2012's accounting mishap when it overstated its own accounts.

It seems that RSM Tenon is under suspicion that it artificially reported high revenues while hiding bad debts and hid costs in order to boost executive bonuses.

Several directors have resigned, the shareholders were wiped out and the company was absorbed by another firm.


PwC is sued for $1-billion over MF Global collapse
Jonathan Stempel
New York — Reuters
28 March 2014

he administrator of MF Global Holdings Ltd.’s bankruptcy plan on Friday sued the auditor PricewaterhouseCoopers for at least $1-billion (U.S.) over its advice on a $6.3-billion European sovereign debt investment that helped fuel the brokerage’s rapid demise.

According to a complaint filed in U.S. District Court in Manhattan, PwC committed professional malpractice by offering “flatly erroneous” advice concerning, and approval of, the off-balance-sheet accounting treatment for the debt by MF Global and its then-chief executive, Jon Corzine.

The complaint said PwC knew that the investment would add significant risk to MF Global’s already weak finances. It said MF Global would not have taken on the exposure, which allowed it to book immediate revenue, had it received sound advice.

“PwC’s professional malpractice and negligence were a direct and proximate cause of massive damages the company suffered,” the complaint said.

Caroline Nolan, a PwC spokeswoman, declined to comment.


Livent auditor Deloitte ordered to pay $84.8-million for failing detect fraud
Drew Hasselback
Financial Post
06 April 2014

The Livent scandal has yet again made Canadian legal history, this time in the form of an $85.6-milllion lawsuit judgment that puts accounting firms and corporate auditors under the legal microscope.

Livent’s former auditor, Deloitte, has been ordered to pay damages to the theatre company’s creditors after an Ontario judge ruled the accounting firm failed to detect fraud at the company, even though there were plenty of warning signs that something fishy was going on in the 1990s.

“In my opinion, Deloitte should have remained firm in its resolve to sever its relationship with Livent at the end of August 1997 at the earliest,” writes judge Arthur Gans of the Ontario Superior Court of Justice in a 118-page ruling dated Friday. “The red flags were certainly aflutter by that time.”

The judgment is a very rare situation. For years creditors and investors have been looking for ways to sue corporate auditors. This decision shows one way it may be done.


Ernst & Young settles with OSC in Sino-Forest, Zungui cases
Janet McFarland
The Globe and Mail
19 September 2014

The Ontario Securities Commission has negotiated no-contest settlement deals with accounting firm Ernst & Young LLP to resolve allegations that the company did negligent work on audits of two Chinese-based companies.

The OSC said Friday its staff have reached agreements with the accounting firm over its audit work at Chinese forestry company Sino-Forest Corp., which collapsed in 2011, and at athletic-shoe manufacturer Zungui Haixi Corp.

Terms of the settlements will not be disclosed until they are approved by OSC commissioners at a hearing scheduled for Sept. 30.

The deal is the OSC’s first high-profile settlement using no-contest deals, allowing parties to settle cases without having to make admissions of wrongdoing. The OSC introduced no-contest settlements earlier this year as an option for less serious cases that do not involve criminal activity, arguing the deals would reduce the need for lengthy hearings.

prosecution for shoddy work

The allegations against Ernst & Young were a rare instance of an audit firm facing prosecution for shoddy work. The OSC alleged the firm was negligent in its audits of both companies, which traded on Canadian stock exchanges until their shares collapsed in 2011 amid allegations of accounting improprieties.

Ernst & Young previously reached settlements in class-action lawsuits filed by investors of both companies, agreeing to pay $117-million to Sino-Forest investors and $2-million to settle claims with Zungui investors.


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