Posts Tagged ‘pricewaterhousecoopers’

Once Again, Audits Don’t Find Fraud (But Short Sellers Do)

Anyone who is being honest will tell you that financial statement audits don’t find fraud. On the rare occasion they do, but by and large audits are not designed to detect fraud and the auditors don’t have enough fraud detection training.

One solution to this problem is the engagement of forensic accountants to look for fraud. But companies don’t seem to interested in going the extra step.

Today Hewlett-Packard announced that an internal investigation revealed accounting fraud by Autonomy, a company that was acquired by HP last year for more than $10 billion. More specifically, the company said:

PricewaterhouseCoopers a Defendant in Two Lawsuits Over Audits

In the last week Big Four auditing firm PricewaterhouseCoopers has been sued over its performance of audits of companies with massive frauds. First, PwC was named as a defendant in a suit filed by the Federal Deposit Insurance Corporation as the receiver for Colonial Bank.

Colonial Bank went under thanks to a fraud by Taylor Bean & Whittaker Mortgage Corp., its largest mortgage banking customer. Executives at Taylor Bean & Whitaker cooked up a scheme whereby they sold $400 million in worthless mortgages to Colonial Bank. The mortgages were worthless because they either did not exist, or had already been sold to other investors.

Green Mountain Coffee: Accounting Irregularities and Other Concerns

gmcr green mountain coffee roastersA couple of weeks ago, David Einhorn bashed Green Mountain Coffee Roasters (NASDAQ:GMCR) in a 110-slide presentation called “GAAP-uccino” at the Value Investing Conference, sending the company’s shares down. The stock opened at $91.66, and closed at $82.50 the day of his presentation. Over the next two weeks, the stock closed as low as $61.59, with the stock ending last week at $70.99.

The stock had been hovering between $100 and $110 a share in September, despite warnings by others that Green Mountain has been manipulating numbers and could become the target of a full-blown investigation by the Securities and Exchange Commission.  Sam Antar, the former CFO of massive fraud Crazy Eddie, has been critical about Green Mountain for some time. He has been vocal about the company’s disclosures, accounting irregularities, and GAAP violations.

Overstock.com: The Circus Continues

Sam Antar has often referred to Overstock.com and CEO Patrick Byrne as the gifts that keep on giving. And he sure is right! There is never a dull moment when it comes to wacky conspiracy theories and accounting woes that never end.

Last week, Overstock (NASDAQ:OSTK) announced that it wouldn’t be filing its 10-Q for the third quarter on time. The reason? Patrick Byrne had created another clever (but completely wrong) accounting treatment for another accounting error recently discovered, and the auditors wouldn’t sign off on it.

Bailout Head Neel Kashkari Wants Transparency (Except When He Doesn’t)

It’s been widely reported that Neel Kashkari, Goldman Sachs alum and head of the $700 billion bailout, has said he wants transparency in administering the whole process. He is quoted as saying:

“Consistent with Congress’ intent, we are committed to transparency and oversight in all aspects of the program and have already taken several important steps in this area…”

Yet I have to wonder how transparent he really wants things to be when large contracts related to oversight and administration are being released to the public with redacted information. How is that transparent, if we can’t even see who is involved with overseeing the bailout and what they’re being paid?

Overstock.com Materially Overstates EBITDA

Sam Antar has a great article today on Overstock.com (NASDAQ:OSTK) continuing to overstate EBITDA. Specifically, Sam says:

In Overstock.com’s Q1 2008 earnings release and 10-Q report the company continued to improperly remove from its EBITDA calculation, certain stock-based expenses in violation of Regulation G. As a result, Overstock.com’s reported Q1 2008 EBITDA of $3.524 million was materially overstated by $1.339 million or about 61%.

And of course, that overstatement is in addition to the overstatement that results from Overstock.com calculating EBITDA by starting with operating income, instead of net income, as required by the SEC rules. Some people erroneously believe it’s okay to start with a different figure when calculating EBITDA. That’s not true.

The SEC does not permit companies to do that because of the confusion it could cause:

Overtime Lawsuits For Big Auditing Firm: Could It Lead to Problems For Other Firms?

Class action suits against auditing firms PricewaterhouseCoopers and Deloitte & Touche are raising questions about future lawsuits. Auditors are suing PwC because they say they were denied overtime pay and benefits, and the suit covers all associates and senior associates of PwC in California.

The firm is saying that the auditors were properly classified as exempt employees under California law, and therefore they were not entitled to overtime pay.

Morningstar on PricewaterhouseCoopers and Usana

Today (bold added by me):

USNAannounced Wednesday that PricewaterhouseCoopers has been hired as the company’s new independent auditor. We are encouraged by this news as we view PwC’s new role as a sign of Usana’s financial legitimacy; however, we are still wary of Usana’s management team. PwC will immediately begin reviewing Usana’s second-quarter results, which were filed but never reviewed by an independent auditor, thereby making the company delinquent in its regulatory filings. Usana did not disclose the fees it will pay PwC but will provide further details in an 8-K, which management expects to file soon. While we don’t anticipate any major changes to our fair value estimate from either the 8-K or amended 10-Q, we will review both filings carefully and adjust our projections accordingly.

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