On Friday, 8 August 2014 3:21 AM, Ramachandran Mahadevan <ramachandran.mahadevan@gmail.com> wrote:
This Court's Ruling Puts the Opinion in Auditor's Internal Control Opinion
posted on: Wednesday, August 6, 2014
A brief ruling issued this week by U.S. District Court Judge James C.
Mahan makes it clear that an auditor isn't always liable even when a
subsequent auditor uncovers fraud. In Oaktree Capital Mgmt., L.P. v.
KPMG, 2014 U.S. Dist. LEXIS 106538 (D. Nev. 2014), the plaintiffs had
purchased notes issued by a company that later defaulted and went
bankrupt. One of the defendants had audited the issuer's 2007
financial statements that were included in the issuer's filings with
the Securities and Exchange Commission. A different firm (KPMG) later
discovered that the issuer had been providing fake addresses to the
auditors for sending confirmation requests. The note purchasers
brought suit under Section 18 of the Securities Exchange Act of 1934,
arguing that even though KPMG's discovery was made in 2010, it could
be inferred that the practice had occurred in 2007. The plaintiffs
made similar allegations regarding the issuer's reported sales and
cash balances.
Judge Mahan, however, found that these allegations were "merely
consistent with, not indicative of, a failure to follow GAAS standards
[the opinion misdescribes GAAS as Generally Accepted Accounting
Standards]". He further found that it was "very possible" that the
first auditor "complied with GAAS and did not discover the fraudulent
activities that may have been occurring". Judge Mahan also dismissed
plaintiffs' claim that the auditor made a false statement about the
issuer's internal controls, noting that an "auditor's opinion on
internal controls is just that – an opinion". (citing Deephaven
Private Placement Trading, Ltd. v. Grant Thornton & Co., 454 F.3d 1168
(10th Cir. 2006).
© 2010-2014 Allen Matkins Leck Gamble Mallory & Natsis LLP
--
CA Ramachandran Mahadevan,M.Com.,F.C.A.,
I-708,Mantri Tranquil,Subramanyapura Post,
Bangalore-560061
Karnataka,India.
+91 80 42011024
You never achieve success unless you like what you are doing."
--Dale Carnegie,
American self-help author and lecturer
--
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posted on: Wednesday, August 6, 2014
A brief ruling issued this week by U.S. District Court Judge James C.
Mahan makes it clear that an auditor isn't always liable even when a
subsequent auditor uncovers fraud. In Oaktree Capital Mgmt., L.P. v.
KPMG, 2014 U.S. Dist. LEXIS 106538 (D. Nev. 2014), the plaintiffs had
purchased notes issued by a company that later defaulted and went
bankrupt. One of the defendants had audited the issuer's 2007
financial statements that were included in the issuer's filings with
the Securities and Exchange Commission. A different firm (KPMG) later
discovered that the issuer had been providing fake addresses to the
auditors for sending confirmation requests. The note purchasers
brought suit under Section 18 of the Securities Exchange Act of 1934,
arguing that even though KPMG's discovery was made in 2010, it could
be inferred that the practice had occurred in 2007. The plaintiffs
made similar allegations regarding the issuer's reported sales and
cash balances.
Judge Mahan, however, found that these allegations were "merely
consistent with, not indicative of, a failure to follow GAAS standards
[the opinion misdescribes GAAS as Generally Accepted Accounting
Standards]". He further found that it was "very possible" that the
first auditor "complied with GAAS and did not discover the fraudulent
activities that may have been occurring". Judge Mahan also dismissed
plaintiffs' claim that the auditor made a false statement about the
issuer's internal controls, noting that an "auditor's opinion on
internal controls is just that – an opinion". (citing Deephaven
Private Placement Trading, Ltd. v. Grant Thornton & Co., 454 F.3d 1168
(10th Cir. 2006).
© 2010-2014 Allen Matkins Leck Gamble Mallory & Natsis LLP
--
CA Ramachandran Mahadevan,M.Com.,F.C.A.,
I-708,Mantri Tranquil,Subramanyapura Post,
Bangalore-560061
Karnataka,India.
+91 80 42011024
You never achieve success unless you like what you are doing."
--Dale Carnegie,
American self-help author and lecturer
--
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