This was not seven days to press between the scrapbook, especially if you were an employee of the Big Four.
PricewaterhouseCoopers and Deloitte found themselves getting served more often than a busload of tourists at a roadside Cracker Barrel. And a whole lot of auditors and partners at those two firms, unfortunately, didn’t even get the opportunity to sample the restaurant’s signature lemonade or chicken and dumplings.
No, instead PwC got a plateful in the form of a $2.5 billion lawsuit by former audit client Amerco – the debt-strapped parent of U-Haul International. Amerco, which filed the suit on, ironically, Good Friday, charged that PwC’s mishandling of their audits is a big part of the reason they’re in their current financial malaise.
PwC countered by claiming that Amerco was attempting to make itself blameless in the matter when the ultimate responsibility over their numbers should first and foremost have been theirs. Which, when you think about it, is sort of a fair point.
Last year, after dismissing PwC as its auditor, Amerco attempted to go the mediation route in its battle with the firm and retained noted audit authority Douglas Carmichael, an accounting professor at Baruch and recently named chief auditor at the Public Company Accounting oversight Board.
At that time, Carmichael was rather scathing in his conclusions about PwC’s performance as Amerco auditor.
Four days later, Deloitte, was sued by former audit client Micrel Inc., which charged the auditor with rendering “negligent services as accountants and making false statements regarding stock-option accounting,” which the company relied upon and resulted in an earnings restatement.
Strange that when Micrel changed auditors last year, a filing stated that it had “had no disagreements regarding accounting principles or practices” with Deloitte.
Nevertheless, there seems to be a snowballing trend here, almost mirroring the wave of class-action shareholder suits in the early 1990s — suits that are now de rigeur for unhappy stockholders.
Now, the way our legal system works, it’s likely to be a while before the aforementioned suits press on ahead.
And you’re probably playing with house money if you wager that Ernst & Young will likely be receiving similar personalized service when the HealthSouth debacle eventually plays out.
But now that the PCAOB is quickly stepping up to speed, audit firms cited by the oversight body will no doubt signal a veritable buffet of litigation for those predatory creatures known as trial lawyers as they scour the landscape for disgruntled audit clients.
But understand this:
If an auditor’s incompetence leads to a debt restructuring or worse, then there should be legal action.
But the problem with litigation of this nature is that it’s often hard to objectively tell just who the victims are.
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