I don't know if any of you have been following the Ebix trainwreck today, but the tl;dr is that they had some accounting issues that are now getting an investigation by federal attorneys.
I did some digging and found that KPMG resigned as their auditor back in 2003 (or somewhere around then), and they seem to churn through auditors at a pretty quick rate.
Is it normal for a public accounting firm to resign as the auditor instead of giving a qualified opinion? Meaning, is it like sell-side reports where you know there can be undue influence from the IB revenue? I think it would be an interesting case study to see how many S&P 500 members, or even Russell 3000 members, got a qualified opinion over the last few years, and how their stock prices reacted.
Giving a qualified opinion means that there is some SERIOUS shit going on. Not just the odd earnings oddity here and there, but some real fraud.
Never. Every incentive is to give an unqualified opinion. A lot of money depends on it. If it is anything but, then it means the risk of litigation is greater than the millions per a year the firm brings in on its clients.
For fun:
Can anyone give an example of a single 10-K that was filed with a "qualified" opinion?
I cant...
GM in 2008
Very interesting. Can't say I'm too surprised though.
So, if auditors don't actually do their jobs and give qualified opinions when necessary, but instead just resign so as not to give an unqualified opinion when that isn't the case...
I'm thinking about setting up a news scanner of sorts that I call the "Bullshit Detector." It would sweep things like when an auditor resigns on a publicly traded company, or other potential signs of shenanigans, to get ideas on the short side.
I'm a CPA but in Canada. The firm probably withdrew because they probably realized that the risk from litigation was too great. It was likely due to the 'tone of the top' from management about financial reporting. In Canada public companies cannot issue qualified or adverse opinions. If there is something wrong with the statements, they company has to fix them. I'd imagine it's similar in the US because I have yet to see public US companies with qualified opinions.
Changing an auditor once in 8-10 years after an RFP is probably fine. An abrupt change or frequent changes are not.
I know you think the auditors didn't do their work but they actually did. They basically did the entire audit and management probably didn't want to make the appropriate changes. The auditors probably didn't collect all their fees. Also, their actions signalled to the market that something is wrong with the financial statements which is part of their function in capital markets.
Very interesting, thanks.
It's about 5% iirc. Will look for a source tomorrow
Check out General Motors 2008 financial report. Deloitte issued a qualified opinion
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