17 Jan

Auditor Malpractice: How to Sue an Audit Firm and Win

Last week, Reuters printed an interesting and enlightening interview with Steven Thomas, the managing partner of Thomas, Alexander & Forrester … an attorney known for suing large auditing firms for malpractice… and winning!

Recent big wins include $520 million and $130 million judgments against BDP Seidman, on behalf of Espirito Santo and Batchelor Foundation, respectively. Auditors Ernst & Young (E&Y) and KPMG have been on the losing sides of large cases, and Deloitte, E&Y, KPMG, and McGladrey & Pullen are all current defendants.

So how does Thomas (or any plaintiff’s attorney) win a case against an auditing firm when there is a sizeable fraud (such as the Koss Corp. embezzlement) or the collapse of a Ponzi scheme (such as the Bernie Madoff case)? Read More

20 Nov

Financial Statement Fraud: Olympus Makes It Look Easy

What is a company to do when it wants to hide losses? Manipulation of the financial statements is the obvious first choice. It’s not hard. Sure companies have “internal controls,” which are supposed to include policies and procedures which ensure that financial information is properly recorded. But companies of all sizes have problems with their internal controls, such that it’s not terribly difficult to issue fraudulent financial statements.

Michael Woodford was dismissed in October as CEO of Olympus, and subsequently disclosed that he was fired because he raised questions about some acquisitions by the company. He alleges that Olympus paid incredibly high prices for companies it acquired, and also paid huge “advisory fees” to agents who supposedly represented Olympus in the transactions. The purpose behind these transactions? To cover up investment losses that were decades old without drawing any attention to the issue. Read More

25 Sep

Groupon: Restated Numbers Reveal Failure of Business

In July, critics attacked Groupon (GRPN) and it use of a made-up accounting measure management called Adjusted CSOI. I suggested that the company made up the measure to exclude many of the company’s expenses to make the company look more successful.

There was more to the story, however, as the Grumpy Old Accountants revealed Generally Accepted Accounting Principles (GAAP) violations in reporting revenue. Essentially, Groupon was recording more than twice the amount of revenue it should have been reporting under GAAP. The Grumpies explained: Read More