Monday, May 25, 2009

BDO Seidman Vs Banco Espirito Case - Trial Begins Tomorrow in Florida Court

BDO Seidman Vs Banco Espirito Case - Trial Begins Tomorrow in Florida Court

In August of 2007, we had blogged about a large $521 million financial judgment against BDO Seidman in its audit of Banco Espirito Santo of Portugal. At that time, we said,

“Banco Espirito Santo claimed it partnered with Bankest Capital to form E.S. Bankest in late 1990s relying on (BDO Seidman's) faulty audits that Bankest Capital's income had nearly tripled from 1995 to 1996. The bank also relied on later audits from BDO Seidman, which certified audits for E.S. Bankest accounts totaling some $225 million, of which only $5 million represented legitimate income.The bank is understandably happy with this verdict, but BDO Seidman will appeal it vigorously, by posting a $50 million bail. As expected, the firm will argue that senior management at Banco Espirito Santo was aware of this fraud and was also complicit.”...


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1 comment:

moses said...

After the demise of arthur andersen, Accounting firms seen no to have learned a lession. Accou nting shenanighan in BDO Seidman should be considered as taininting the inage of accountants and other practices that exercise a greater duty of care owed to the public and their clients.

The verdict, is very fair and will shape the future of the accounatant's proffession for better. One of the surest changes that we will be seeing from the verdict on BDO and the satyam's pwc case of india will lead to redrafting of the network agreements and memorandas. This is to effectively limit liability of malpractices of negligent partners from collapsing whole networks or even portlaying wrong market signals on the quality of work from the accountants.

Currently, BDO global may not deny the agency relationship considering that BDO seidman operate with the brand name of BDO which they annualy pay for . Secondly, BDO international just like any other network derive it revenue and greater control of clients through client referal to and around it's networked partners.It is therefore imparative that BDO internation may have to step in to support its USA unit by utilising the networks proffessional indemnity insurance cover.In this case, $521 million order will be a dot in the ocean.

I'm worried, about reprisals from accounting regaulators around the world, for shoddy accounting work from BDO networks. This are likely to have long term effect on its going concern. This judgement directly suggests that the BDO networks audit methodology is surely substandard and may need to be revamped. Whether, accountants have the time to do this ?unlikely.The obvious is to reprimand the partners, and scrutinise the whole networks audit methodology.

As for pricewaterhouse, in the satyam case, it is clear that they have become complacent.We cannot escape genarally, talking of the other three of the big four.But the BDO's ruling will herald a new age of accountants becoming more resposnible and responsive to changes in clients operating legal environment.

Duty of care, is universally apllicable principle.The need to consistent apply this regardless to the size of the practice promises that justice is better served.

IFAC, also needs to rise to the occassion, and question the operations of the networks. Some networks in accounting have very very complex arrangements including trustee arrangements. This do not allow partners to full play their roles as they remain just partners in the payroll.A case study, is of a firm whose parent sits in China while it engages partners in other countries say USA as payroll partners.All benefits accruing from this practices regardless, are transfered to the parent in full while risks are not trasferable. The complexity here is that, while local partners practice in their regions as local partners individually with the licence given to the firms, in the event of displinary actions being taken against the practice, only specific partners are reprimanded by account bodies in this areas of operation.The parent firm, goes round to shop for another partner(s).

Today, we need to shape the accounting proffession to meet the needs of this century and the future.This is only possible if drastic or extreme actions are taken against unproffessional behavious and lessions are lerned. Accounting profession can never be made adabtable to changes in technology, law, people , business environments if it continues to operate on the principles of 17th century which were learned by "seidamn ,Binder Dijker Otte". Change must be now be felt in the classrooms, curriculums for training, apprenticeships, practices, courts. This way accountant will better suppert development.