Ouch! $1 million fine for Deloitte
I suppose in the grand scheme, it’s not much of a hit for Deloitte & Touche to receive a $1 million fine, but the publicity ramifications could prove far more costly.
The fine comes along with a censure from the Public Company Accounting Oversight Board (PCAOB) for a 2003 audit. The San Diego partner on an audit of the financials of drug maker Ligand Pharmaceuticals, James Fazio, was deemed not competent to head the audit team.
According to PCAOB, employees at Deloitte had concerns about Fazio in 2003 and thought he might not be qualified to even work for the firm at all. Nonethless, he stayed as partner on the Ligand 2003 audit, and into 2004. There were revenue recognition problems on the 2003 audit, and even the basic accounting rules weren’t followed. PCAOB said that Fazio failed to “…exercise due professional care, exercise professional skepticism, obtain sufficient competent evidential matter … and supervise assistants.”
Ultimately, Ligand had to restate three years of financials, all of which had been audited by Deloitte. For 2003 alone, revenue was adjusted downward by 52%.
Of course, Deloitte isn’t admitting or denying PCAOB’s charges, but is paying the fine and is promising to make some procedural changes. Fazio is also prohibited from being associated with any public accounting firm for the next two years.
Well at least Fazio can’t do this anymore. I have correspondence from an auditor who insists that even if a company claims that some technology it bought does not work, an SFAS 142 review would not need to show any impairment. Of course he knows that’s not true but what does he care. You can see some details at
http://freehydrogen.blogspot.com/2006/04/curious-19-million-writeoff-for.html