The Securities and Exchange Commission strongly objected to a statement by Big Four firm Deloitte & Touche regarding settlements the audit firm entered into with the commission to resolve charges related to two of Deloitte's former audit clients.
The SEC asked the firm to revise a press release that it had issued Tuesday, Deloitte spokeswoman Deb Harrington confirmed.
"They [the SEC staff] objected to our characterization of how we described the case and we agreed to defer to their description of the case," Harrington told WebCPA.
The firm altered and omitted language in the original release regarding the details of two settlements related to its failed audits of cable company Adelphia Communications Corp. and defunct retailer Just For Feet.
Deloitte, without admitting or denying wrongdoing in either case, agreed Tuesday to pay $50 million in the Adelphia settlement and $375,000 in the Just For Feet settlement.
Deloitte revised a paragraph that originally read, "In both the Adelphia and Just For Feet cases, the primary basis of the SEC's claim is that the wrongdoing by the client and certain members of its management should have been uncovered, despite their collusion in some instances with others specifically to deceive the external auditors. The client and certain of its senior executives and others deliberately misled Deloitte & Touche LLP through the financial information they provided. In the case of Adelphia, certain executives were found guilty of fraud, while in the case of Just For Feet, certain executives and third-party vendor employees agreed to plead guilty to fraud charges."
In its revised release, the firm said, "In both the Adelphia and Just For Feet cases, the primary basis of the SEC's claim is that the audits were deficient and failed to uncover fraud committed by the companies and certain members of their management in the face of identified risks." The second sentence was omitted, while the third statement was moved to the bottom of the revised release.
SEC officials did not return calls for comment. However, published reports said that regulators took exception because commission orders had, in fact, found that Deloitte didn't explore warning signs or had backed down under pressure when it completed the two audits.
The SEC staff "very much disagrees with Deloitte's characterization" of what the case is about,'' Helene Glotzer, associate director of the SEC's Northeast Regional Office, told The New York Times.
According to the paper, SEC Northeast Regional Office director Mark K. Schonfeld said Deloitte "was not deceived in this case. The findings in the order show that the relevant information was right in front of their eyes. Deloitte just didn't do its job, plain and simple. They didn't just miss red flags. They pulled the flag over their head and then claimed they couldn't see."
