Did the auditors miss any of these issues, give incorrect advice or otherwise permit the wrongful backdating activity to occur? MWE also advised auditors to steer clear of involvement in internal investigations of the backdating issues if firms had any part in designing, approving or implementing stock option granting plans in question. To the extent the firm is asked to analyze or assist in the defense of a stock options program concerning which it provided advice, the conflicts may be insurmountable.
Moreover, auditors review and opine on the financial statements of public companies quarterly and annually.
Audit firms should have only investigated companies they did not audit, but I suspect this independence conflict was ignored given the number of investigations and the shortage of accounting firms that knew how the programs worked.
It’s a great competitive advantage to be the one who designed the crime when someone later needs help investigating it, or covering it up.
Options backdating was the hottest issue potentially affecting auditors in 20 before the subprime crisis morphed into the credit crisis and then the financial crisis.
These are a few of my posts: Aug 18th, 2007 Brocade And Backdating – Gatekeepers Fail Mar 11th, 2007 Deloitte Settles Again – Options Truth Remains Buried Dec 18th, 2006 Backdating – Now It’s The Directors’ Turn Nov 29th, 2006 The Auditors and Options Backdating In one case the CEO actually blamed Pw C for the backdating scheme: Jul 10th, 2007 The Blind Man’s Bluff – Indicted CEO Blames Pw C on Backdating From a news account of the case in CFO.com: In a motion to dismiss the criminal case against Gary Gerhardt, the former CFO of Engineered Support Systems, his lawyers say the fact that Pricewaterhouse Coopers accountants were aware that stock options had been granted “in the money” proves that Gerhardt hadn’t concealed the erroneous grant dates. The attorneys claim that since the executives shared information about the options dating with Pw C, ESSI executives can’t be charged with trying to hide the backdating, as the indictment alleges.