Ernst & Young Gets Its Audit Clients in Shape, Ends Up Getting Its Own Ass Kicked

Friday, December 18, 2009 , , , , 4 Comments

Bwhahahahahahahahaha LOL and bwhahahaha some more. Skeptical CPA, what say ye? Surely you have an opinion to express on this farce


In 2002, worried about growing financial scandals, the audit firm of Ernst & Young set out to identify its riskiest clients and force them to comply with accounting rules. The effort backfired.

On Thursday, the firm agreed to pay an $8.5 million fine to the Securities and Exchange Commission for its work auditing the books of Bally Total Fitness. The firm agreed to an order that it cease and desist from violating securities laws.

Six current and former Ernst partners, including Randy G. Fletchall, the partner in charge of the firm’s national office, were also sanctioned by the commission in one of its most sweeping actions against auditors involved in a failed audit.

“It is deeply disconcerting that partners, even at the highest levels of E. & Y., failed to fulfill their basic obligations to the investing public by not conducting proper audits,” said Robert Khuzami, director of the S.E.C.’s enforcement division.

“This case is a sharp reminder to outside auditors that they must carry out their duties with due diligence,” he added. The $8.5 million settlement, one of the highest ever paid by an accounting firm, “reflects the seriousness of their misconduct.”

Mr. Fletchall, who remains with Ernst, was in charge of resolving technical accounting issues in the United States. He was censured by the commission.

Let's replay the scenario. Enron. Arthur Andersen. E&Y's "oh fuck" moment. Shouldn't they have already identified their riskiest clients? And shouldn't they have resolved any issues surrounding those clients without needing an $8.5 million settlement with the SEC?

$8.5 million? Pennies.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


I read this article today. I will prepare a post on it. I agree, $8.5 million is peanuts to E&Y.


Welcome back.

Looking forward to reading your take on it, Pop.

And thanks. Had a blast in your old stomping grounds... Fed Boy says hello ;)

Care to place bets on which of the Big 87654 will get in the most trouble for 2010? I feel a failure coming on... this especially made me sick, what the hell is $8.5 million to them?

I remember when I was little, once my Mom spanked me for running out into the street at 3 years old. I won't get graphic about how I spent my birthday vacation but let's just say "punishments" really have to be structured as punishments instead of inconveniences otherwise these fuckers will just keep cutting checks to make up for their blatant failure as protectors of the "integrity" of financial statements.

Integrity of financial statements. LOL, maybe you remember a time when a such thing existed?!


cjn said...

This conversation needs another side, so I'll kindly oblige...

The chances of a failure aren't really that good. Think about it. *Everyone* (you know you are) says, "litigation, litigation, blah, blah, blah" and the "firms aren't accountable yada yada yada" all of which are true. A firm is going to fail and then what happens, on and on and on.

Problem is, the SEC (or any other agency or organization) can't fine these firms into failure. And sure, there's lots of litigation but the attorneys for these firms aren't stupid. If they know they're fucked, they'll settle. New Century is suing KPMG for $1B. If KPMG realizes somewhere along the way that they're screwed, they'll settle for a fraction of that.

Look at BDO. They're on the hook for $500 million. Where are they? Out there auditing, earning the dollar.

The only way failure happens is similar to an Andersen/Enron situation where it comes out of nowhere and bam, it's over. Black Swan style. Feel me?


In my defense, cjn, that wasn't even filthy. But whatever. :)

You are absolutely right. It's almost as if the "punishments" are written into expenses this year - "Well we know we are going to blow x% of audits - and bad - so let's just earmark a few million for those bitch ass SEC fines."

I understand your point about a major failure but you have to remember that the unwashed masses are out for blood. It's convenient to place most if not all of the blame on the accountants (and - in cases like this - rightfully so) and you know those asshats in Congress would be happy to come storming down anyone's doors going "what went wrong here?!"

So then the SEC starts to feel the pressure.

And eventually, a witch will have to be burned at the stake.

I vote for PwC but that's just me.....