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Tag: Auditor Shopping
It Turns Out Olympus Could Have (Allegedly) Hidden One of the Largest Accounting Frauds EVER
Just a few days ago, Caleb asked why anyone would care if Olympus fired KPMG after a dispute over an accounting matter, but early this morning we learned the answer to that seemingly obvious question.
The question now is, why did KPMG wait around to get fired and not run the hell out of there? Well, because the issue at hand at that point was “goodwill impairment,” which ended up being a series of $1 billion transactions that added up to possible fraud. We won’t say Japanese regulators haven’t had the chance to dissect the evidence yet. We can only assume KPMG did not notice that glaring $1 billion error or surely they would have alerted the financial authorities. No, dismissed “quietly,” swapped out for Ernst & Young. Like Uncle Ernie needs this heat right now.
Fine. Now we’re at tonight (here, at least) and WSJ is live-blogging the press conference at which Olympus’s new president suffered a media grilling over revelations that the company used phony mergers to hide investment losses from shareholders.
“I was absolutely unaware of the facts I am now explaining to you,” new CEO Shuichi Takayama told the press conference. “The previous presentations were mistaken.” Right. First thing you do in this situation is CY-MFing-A, bro.
The Japanese medical equipment and digital camera maker admitted to using acquisitions to cover its securities losses going back to the 1990s. Think about that for a moment. Many of you weren’t even aware of the world around you in the 90s, that was a long fucking time ago. So much for confidence in fragile financial markets.
It wasn’t that long ago that Olympus fired its British CEO Michael Woodford. Takayama had to answer more than a few questions about Woodford at his press conference:
There is a question about Mr. Woodford. “There are no plans for him to return,” Mr. Takayama said.
A reporter asking why the company is not thinking about revoking Mr. Woodford’s dismissal.
Mr. Takayama said Mr. Woodford was dismissed for his management style and therefore, there is no thought of revoking that dismissal.
A reporter asks Mr. Takayama if his impression of Mr. Woodford has changed in light of the revelations, his response: “No, it has not.”
It’s very interesting how they are holding the line against Mr. Woodford. It almost seems personal.
It couldn’t possibly stem from a feeling of betrayal and anger! A 20-year-old (alleged) fraud is suddenly trotted out into the 24-hour Internet news cycle (they didn’t have that in the 90s when they started this scam) and these guys have to apologize to shareholders because this asshole went sniffing around their completely obviously fake M&As.
“It is truly extraordinary and frankly unbelievable that Olympus, a major Nikkei listed public company, made a series of payments approaching USD 700 million in fees to a company in the Cayman Islands whose ultimate ownership is still unknown to us, preventing the auditors from verifying that no related parties were involved,” Woodford wrote in an Oct. 11 letter. “In putting the company first, the honorable way forward would be for you and Mori-san to face the consequences of what has taken place, which is a shameful saga by any stretch of the imagination.”
Woodford hired PwC, who wrote a damning report exposing Olympus’s shady M&A activities. PwC spokesman Derek Nash said he “could neither confirm or deny” that the firm had done any work for Olympus.
Fuck! When will these whistleblowers stop?
The good news: plenty of work coming up for you, GC faithful.
KPMG Rolls the Dice, Will be the Next Auditor of Overstock.com
But you already knew that was going to be the case. Back when we asked you to vote on which firm would be the next firm fired engaged by Overstock, over 42% of you said it would be KPMG.
This news comes despite reservations expressed by at least one reader who, at the time, had this commen lockquote>I for one think it is sad that such a high percentage of survey responders think KPMG will pick up OSTK. I hope from a public opinion and liability standpoint that KPMG will resist the urge to add yet another high risk client to its listing and cause further damage its reputation.
Sorry, dear reader but apparently the high profile cat fight between the company and Grant Thornton wasn’t enough to scare KPMG off. Not even the very public revelation of Patsy’s creepy-ass stalking of Overstock critics in the financial media and blogosphere caused the KPMG partners in SLC to turn this client down.
Oh, and not to mention a management team who thought that filing unreviewed 10-Q was the best course of action. But as white-collar crime expert (and self-proclaimed crook) Sam Antar told us:
KPMG is taking a client with no management integrity and is well advised to study SAS No. 99 about “Consideration of Fraud in a Financial Statement Audit” regarding the unethical “tone at the top” set by Overstock.com’s unprincipled management team. Every single initial financial report for every reporting period issued by Overstock.com has failed to comply with GAAP and other SEC disclosure rules since the company’s inception. Overstock.com has restated its financial reports two times in the last three years and now is trying to avoid a third restatement of financial reports resulting from its improper use of “cookie jar” reserves to inflate its financial performance from Q4 2008 to Q3 2009.
In case you’re not convinced of management’s shadiness, Sam also pointed out that they intended to wait for the current SEC inquiry to be resolved prior to choosing a new auditor:
Patrick Byrne and Jonathan Johnson went back on their promise that they would not shop for an audit opinion. Both Byrne and Johnson previously told investors that Overstock.com would wait until after the SEC Division of Corporation Finance completed its review of the company’s financial disclosures.
We looked at the transcript of the conference call and here’s what we found (a link to the entire transcript is below):
Willis Taylor – Gagnon Securities – Analyst
Since you’ve dismissed your auditor for a very specific accounting choice, when you go to select a new auditor, how do you prevent yourself from being accused of opinion shopping?
Jonathan Johnson – Overstock.com – President
That’s a great question, Louis, and that’s part of the reason that we’ve decided not to select a new auditor until this — until we resolve this issue with the SEC. We do not want to be accused of opinion shopping. We’d like the SEC to help us figure out — we’d like them to say we’ve done it the right way or we’ve done it the wrong way. Once they say one of those two, we don’t need to opinion shop.Patrick Byrne – Overstock.com – Chairman and CEO
But, so, I would even say to the point that when people have contacted us, we have discouraged any communication on the grounds that we got — for just that reason — well, I have the — no matter who we talk to now, then whoever we ultimately pick, people are going to say, well, you did this because you opinion shop.
So we’re really not having discussions with anybody. It’s nice to get phone calls, but we’re not talking to anybody until we get through this just to prevent — just as a prophylactic measure.
From the sounds of it, Overstock was beating off firms with a stick, so the pressure must have gotten to company’s audit committee to pick a new firm prior to the SEC wrapping up its little inquiry. So can we assume that since the SEC hasn’t told them yay or nay on their accounting, they ARE opinion shopping?
And so the winner (read: next to be dismissed) is KPMG, who not only has to throw together an audit for 2009, they have to re-issue 10-Qs for the last three quarters. Who in SLC is giving up sleep for the next four months?
Here is the Overstock press release (we emphasized some good parts) which is not shy about slamming Grant Thornton or that the SEC isn’t finished with its inquiry:
Overstock.com, Inc. (Nasdaq: OSTK) today announced that its Audit Committee engaged KPMG as the company’s independent registered public accounting firm of record for the fiscal year ending December 31, 2009. KPMG will conduct an integrated audit of the company’s 2009 financial statements, including review of the company’s quarterly information for the periods ending March 31, 2009, June 30, 2009 and September 30, 2009.
“It is nice to be back with a Big Four accounting firm,” said Jonathan Johnson, President of Overstock.com. “We are pleased to have the resources and professionalism that KPMG brings as our auditors. We will work closely with them to timely file our 2009 Form 10-K. In the meantime, we remain in discussions with the SEC to answer the staff’s questions on the accounting matters that lead to our filing an unreviewed Form 10-Q for Q3.”
Overstock.com’s Audit Committee dismissed Grant Thornton, its previous auditors, in November when Grant Thornton advised the company that they had revised their position on how the company should have recorded a $785,000 asset in 2008, and, that as a result of this revised accounting position, Grant Thornton would be unable to complete their review of the company’s Q3 2009 financial statements unless the company amended its previous 2009 quarterly filings and restated our 2008 financial results.
We wanted to get KPMG’s thoughts on this but our emails have gone unreturned at this time. If you’re in the know, definitely get in touch with us about anything related to the latest twist to this story.
Will a Boycott of Overstock.com Thwart Patrick Byrne’s Auditor Hunt?
Guys and gals, we here at GC are concerned about something. Something other than who the next face of Accenture will be (honestly we’re excited about Chuck’s commanding lead).
No, we’re concerned that your humble servant and Farmville enthusiast Patrick Byrne is going to be unable to find an auditor for Overstock.com. The company has until January 18th to pull something together so the NASDAQ doesn’t delist them and if things continue the way they are, it’s going to be hello Pink Sheets.
Maybe things wouldn’t look so grim if PB hadn’t blown off CNN. Or if he hadn’t pissed off every single financial journalist and blogger by getting too friendy.
But now that Barry Ritholtz has called for a boycott, any hope for finding the next auditor to put the stamp of approval on OSTK’s financial statements is fading.
Wait! Gary Weiss has his doubts: “As for that boycott: great idea, except that with Byrne manipulating the financials, how would you know if it is having any impact?”
Whew! There’s still a glimmer.
Boycott Overstock.com [The Big Picture]
Patrick Byrne May Say Something That Will Antagonize You
The Patrick Byrne Express (via Segway, natch) pulled over from its nationwide auditor search to pen the latest triumph in his quest to refute every Overstock/Patrick Byrne hater on the planet.
Patsy’s latest letter informs us of the settlement that Overstock has reached with Rocker Partners, one of those short-selling hedge fund haters, for $5 million.
His masterpiece opens with “The good guys won” and then rambles on to tell us how he feels about pretty much everyone in financial media. And that’s what this was really all about. It wasn’t about the money, you fools. This was about exposing the anti-Overstock/Patrick Byrne contingent:
What is of vastly greater significance than this $5 million payment, however, is an examination of the cover-up conducted by elements of the New York financial press. Taking the lead was CNBC, which spent a great deal of airtime downplaying the significance of this suit, vilifying me, and smearing Overstock.
Apparently, this is just the beginning. Prime brokers, sounds like you’re next.
And just so you know, PB and his company don’t give a damn if you, the SEC, or anyone else for that matter gets bent out of shape about them spreading the truth. As Floyd Norris rehashes some of the trubs going on in casa de Overstock, he notes this little treasure from the company’s unreviewed 10-Q:
Public statements we or our chief executive officer, Patrick M. Byrne, have made or may make in the future may antagonize regulatory officials or others.
We and our chief executive officer, Patrick M. Byrne, have from time to time made public statements regarding our or his beliefs about matters of public interest, including statements regarding naked short selling. Some of those public statements have been critical of the Securities and Exchange Commission and other regulatory agencies. These public statements may have consequences for us, whether as a result of increased regulatory scrutiny or otherwise.
Sounds like fighting words to us. Go ahead and bring it, SEC. Patrick Byrne will be waiting.
Overstock Claims Victory [Floyd Norris/NYT]
Patrick Byrne: Noooo, Grant Thornton, You’re Lying
Okay you guys, this Overstock.com/Grant Thornton cat fight is getting real mature.
Your humble servant Patrick Byrne has responded to Grant Thornton’s letter stating, in no uncertain terms that he is a L – I – A – R by saying, “I know you are but whatami? I know you are but whatami? I know you are but whatami?”
In the latest OSTK press release, Patsy lists nine points of contention that he has with Grant Thornton’s letter to the SEC which started all this “You’re a liar!” business. We’ve presented some of our favorite moments after the jump for your enjoyment (all emphasis is ours):
4. Grant Thornton Letter: “Further, paragraph 4 references a report on the Company’s consolidated financial statements for the year ending December 31, 2009. As we have not performed an audit of the Company’s financial statements for any period, this reference is incorrect.”
We know that Grant Thornton never performed an audit of our 2009 financial statements and, again, we never said otherwise: as it is currently November, 2009, our 2009 financial statements do not exist. The SEC requirement is that we disclose what Grant Thornton would have disagreed with had it performed what our audit committee engaged them to do – an audit of our 2009 financial statements. We complied with the SEC requirement. I’m not sure what Grant Thornton expected us to say in prefacing the explanation of our disagreements with Grant Thornton.
…
6. Grant Thornton Letter: “We disagree with the Company’s statement in paragraph 7 ‘that upon further consultation and review within the firm, Grant Thornton revised its earlier position’ regarding the previously filed 2009 interim financial statements. This statement is not accurate. The Company brought the overpayment to a fulfillment partner to Grant Thornton’s attention in October. After additional discussions with the Company, the predecessor auditor and receipt of additional documentation from the Company we determined that the Company’s position as to the accounting treatment for the overpayment to a fulfillment partner was in error.”
This is a falsehood. On several occasions Grant Thornton discussed with and provided guidance on the accounting for the $785,000 fulfillment partner overpayment during and prior to October…
7. Grant Thornton Letter: “Further the Company’s statement does not address the fact that the consultation noted in paragraph 5 was in relation to the ongoing incomplete review of the September 30, 2009 interim financial statements.”
This is a curious statement given that on October 30 Grant Thornton sent a final report dated November 5 (for a November 6 audit committee meeting) to our audit committee stating that “[w]e have concluded our review of the most recent interim quarter. Our review procedures identified certain immaterial differences,” all of which “are currently being addressed by management or will naturally be corrected by year-end.” These immaterial differences amounted to a net $35,000 for the first nine months of 2009.
8. Grant Thornton Letter: “We have also read Item 4.02 of Form 8-K of Overstock.com, Inc. (‘the Company’) dated November 16, 2009 and disagree with the statements concerning our Firm contained therein. During the course of our incomplete review of the Company’s September 30, 2009 financial statements, we advised the Company that disclosure should be made to prevent future reliance on its March 31, 2009 and June 30, 2009 financial statements. We advised the company [sic] to make the disclosure because we became aware that material modifications should be made to the previously filed 2009 interim financial statements to conform with US GAAP.”
This is incorrect. As noted above, on October 30, Grant Thornton sent a report to our audit committee stating that “[w]e have concluded our review of the most recent interim quarter,” and nowhere in its October 30 report is there any advice from Grant Thornton that we should make disclosure to prevent future reliance on our Q1 or Q2 2009 financial statements. Such an omission from such a report seems conclusive of the fact that this was not an issue until our audit committee dismissed Grant Thornton. In addition, on November 13 – after our audit committee dismissed Grant Thornton – our Senior Vice President, Finance specifically asked Mr. Haycock (the managing partner of the Grant Thornton Salt Lake office) whether Grant Thornton had communicated to our audit committee that we should take actions or make disclosures concerning our Q1 and Q2 2009 financial statements, and we noted that any such communications would trigger a Form 8-K filing requirement for us. Mr. Haycock answered that Grant Thornton had not made any such communications. Grant Thornton only gave us such advice later on November 13 in a letter to the chairwoman of our audit committee.
Byrne wraps it up this way, naturally:
As I said in my November 16 letter, our finance and legal teams continue to work with the SEC on the issues addressed in its comment letters, and once these issues are resolved (and we have engaged another independent audit firm), we will file a reviewed Q3 Form 10-Q/A.
Your humble servant,
Patrick M. Byrne
Oh yeah, did we mention they’re still looking for an auditor? Shockingly, there are still no takers.
The final numbers from our poll show that KPMG is the winner of auditor most likely to be fired next by Overstock.com. We’re still waiting to hear who’s actually entertaining the idea of sabotaging their own firm with this little treat of a company. Stay tuned.
GC Coverage of Overstock.com/Grant Thornton:
Grant Thornton: Patrick Byrne’s Pants Are on Fire
Overstock.com Receives Delisting Notice, Really, Really, Really Needs an Auditor
Overstock.com Fires Grant Thornton, Files Unreviewed 10-Q, CEO Remains Humble
Also see: Overstock: Actually, Grant Thornton Is Lying [Silicon Alley Insider]
Overstock.com Receives Delisting Notice, Really, Really, Really Needs an Auditor
Just a brief follow-up on the three ring circus known as Overstock.com. After Wednesday’s bizarro conference call, Ringmaster Patrick Byrne and his company filed an 8-K on Friday letting the SEC know that the NASDAQ wasn’t impressed with the unreviewed 10-Q that the company filed last week.
The NASDAQ notice informed OSTK that since the company thought it would be cute to file an unreviewed 10-Q, they will delist the OSTK from the exchange if they are not back in compliance with listing rules by January 18th.
It was an especially nice touch that OSTK filed the 8-K “two minutes after market close today, a day after the letter was received.”
Getting back into compliance will involve finding an auditing firm stupid enough desperate enough willing to be the next humble servant to sign off on the 10-Q.
The issue at hand is worth putting to a vote. For whatever reason you like, choose the firm that should be the next auditor of OSTK. We’re not privy to all the possible independence issues that may exist, so anyone that brings them up to point how one firm would be disqualified can piss off.
Is AMC Auditor Shopping?
Maybe! But the movie theater company did dump PwC on October 1st according to a filing with the SEC after just two years.
According to the filing, P. Dubs had only been engaged as AMC’s auditors for the last two fiscal years (4/3/08 and 4/2/09) and the audit committee decided that KPMG will now get the pleasure of opining, also effective on October 1st (congrats, we guess?).
As is typical in these auditor swaps, AMC’s filing states that they had no disgreements with PwC “on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.”
We’d like to think this came down to a PwC partner making some sort of stand against the asinine concession prices that are borderline unethical but that’s just our personal vision. If you’ve got your own ideas about the reasons for the dismissal, discuss them in the comments.
AMC Entertainment hires KPMG to replace PricewaterhouseCoopers [Kansas City Business Journal]