Deloitte hit with record $50m charge
D&T hit with $50m charge for its audit of US telecoms company Adelphia
In what is the US financial watchdog’s largest settlement ever received from an accounting firm, Deloitte & Touche has agreed to pay $50m (£26.2m) in relation to its audit of Adelphia Communications Corporation’s financial statements for the year 2000.
The Securities and Exchange Commission alleged that Deloitte in the US had failed to detect a ‘massive fraud’ at the telecoms business.
In addition the SEC claimed Deloitte failed to implement audit procedures to detect illegal acts at Adelphia. The watchdog also said Deloitte failed to discover that the company had $1.6bn (£840m) in debt improperly excluded from its balance sheet, and that the company had overstated its stockholders’ equity by $375m. The company also failed to disclose significant related party transactions.
Deloitte has agreed to the settlement without ‘admitting or denying the findings’ in the SEC’s order, or the allegations in the SEC’s complaint.
Mark K Schonfeld, director of the SEC’s northeast regional office, said: ‘When auditors turn a blind eye toward misconduct on a high-risk client and allow a fraud of this magnitude to go undetected, the consequences will be severe.’
The settlement will be paid into a fund for compensation of victims of the Adelphia fraud.
Deloitte has also agreed to ‘substantive undertakings’ designed to address its audit of ‘high-risk’ clients in the future, such as involving Deloitte’s forensic accounting specialists in planning high-risk audits, increased training of Deloitte’s audit professionals in fraud detection, increased partner involvement in review of audit work papers, and the retention of an independent consultant to review Deloitte’s compliance with these undertakings.