From the Wall Street Journal:

The University of California, Irvine, says a Broadcom Corp. [NASDAQ:BRCM] executive didn’t earn two academic degrees listed in his corporate biography.

The current issue of New York Magazine has a lengthy story about the collapse of Lehman Brothers. To cut to the chase: Management knew in June that the company was in serious, serious trouble. Which leads me to ask when their auditors knew?

Francine McKenna at re: The Auditors has an interesting post and set of comments about internal audit functions at public companies and the importance of internal auditors.

External auditors look at a company’s financial statements and a small amount of underlying transactions in order to issue a report that the financial statements are properly presented. (It’s really a check of math and application of accounting rules.) The financial statement audits aren’t designed to detect fraud, and so they almost never do.

In contrast, the internal audit function is engaged in ongoing audits of the financial reporting process and other numbers-related projects. The scope of internal audit work varies greatly from company to company.

It should come as no shock to anyone that lots of fingers are being pointed related to Wall Street’s meltdown, and specifically related to the banking industry. And auditors are likely to find themselves the targets of lawsuits. Auditor malpractice is often hard to prove, but in this case, I think there will be several victories against the auditors.

This past week, our good friends at Overstock.com (NASDAQ:OSTK) – - CEO Patrick Byrne, President Johnathan Johnson, and SVP of Finance David Chidester – - made an announcement about how they have screwed up the company’s financial statements again.

Overstock has a colorful history of issuing incorrect financial statements, with the following discoveries of their errors (and maybe irregularities):

You can be sure of two things when looking at Overstock.com (NASDAQ:OSTK) financial statements:

1. They’re wrong
2. There are massive losses (which will be even bigger when #1 comes to light)

PricewaterhouseCoopers LLP (PwC) and Ernst & Young (E&Y) have been chosen by the United States Treasury to help oversee the $700 billion bailout plan. CFO.com reports:

An article on the Industry Standard by managing editor Ian Lamont, “Overstock.com CEO: I’m not vindictive.”, explores a recent blog post made by Patrick Byrne on his site that attempts to expose corruption on Wall Street. Byrne is the completely inept CEO of Overstock.com (NASDAQ:OSTK), the man who has run it into the ground and racked up almost a quarter billion dollars in losses since 2000.

Byrne has been ranting for a while that naked short selling of stocks (an illegal act, by which a stock is sold short before actually securing/borrowing shares to short) is rampant on Wall Street and that something must be done about it. He claims that naked short selling is responsible for his company’s stock price experiencing a serious downward trend since 2005.

My friend Francine McKenna wrote yesterday on her blog, re:The Auditors, about what Sarbanes-Oxley has accomplished:

My contention is that Sarbanes-Oxley has at least raised the tone and tenor of the conversation about internal controls and about common sense, tried and true, reasonable practices for financial reporting to shareholders and other stakeholders. Sarbanes-Oxley has raised the expectations, to an appropriately high level, of corporate governance and ethical, non- self-serving behavior of corporate executives. Sarbanes-Oxley has given stakeholders the tools to bring the hammer down on irresponsible, non-responsive, fat headed, cigar chomping, belligerent, insular, seemingly untouchable “big swinging sticks.” The Tone at the Top as improved in most major corporations and their professional advisors, if not by design then by default – the fear of prosecution.

In the past, I’ve discussed the improper EBITDA numbers reported by Overstock.com (NASDAQ:OSTK). It comes as no surprise that the con game continues with Overstock’s latest reported numbers.

The SEC rules are very simple. “EBITDA” refers to a specific calculation, which is “earnings before interest, taxes, depreciation, and amortization.” Overstock.com and CEO Patrick Byrne have taken liberties with this number, in violation of guidance provided by the SEC on the issue.