VideoA lead audit partner from PricewaterhouseCoopers is expected to take the fall as part of a settlement with the Securities and Exchange Commission over the firm's audit of MicroStrategy Inc.
According to published reports, Warren Martin, a partner in PwC's Tysons Corner, Virginia, office who headed up the MicroStrategy audit, has agreed to be suspended for two years as an auditor.
Under the settlement, the SEC will not bring enforcement action against the accounting firm. The reason: the accounting problems were the result of violations by the audit partner, not a companywide breakdown or approval of bad accounting by senior management at the firm, according to theWall Street Journal. A final agreement could still take weeks or months.
The commission has been investigating PwC's role in the MicroStrategy audit for two years.
The software maker was one of the first high-profile firms to be embroiled in a revenue-recognition scandal during the tech boom. Back in March 2000, shortly before the technology bubble started to deflate, MicroStrategy executives stunned investors when they announced that the company would restate earnings for 1998 and 1999. The stock plunged 62 percent on that day.
MicroStrategy's financials unraveled when its accounting practices were questioned by a magazine in a March 2000 article. A PwC accounting expert then raised questions internally and eventually concluded that the accounting treatment was incorrect. Executives at the audit firm then informed MicroStrategy officials that the company should restate its results.
The SEC alleges that Martin signed off on improper accounting at MicroStrategy but assured PwC's management that the financials were fairly stated, according to the paper.
In May 2001, PwC agreed to pay $55 million to settle a class-action lawsuit alleging it defrauded MicroStrategy investors by approving financial reports that inflated the company's results. "While we believe our defense against the class-action claim was strong and compelling, we ultimately made a business decision to settle in order to avoid the further costs and uncertainties of litigation," Steven G. Silber, a PwC spokesman, told the Washington Post at the time.
Pitt Rails at Biggs Bashing
So, who is going to head up the new Accounting Oversight Board?
Last week it seemed like it would be John Biggs, the chief executive of TIAA-CREF, who reportedly agreed to be the first head of the board, according to a New York Times story.
However, a couple of days later, SEC chairman Harvey Pitt seemingly backed away from Biggs due to pressure from Republicans and former clients who have been arguing that Biggs is too tough on the accounting industry, according to Friday's Times. Indeed, Pitt is caught between Biggs detractors and SEC colleagues and lawmakers who want Biggs to head up the new AOB.
"It appears that the accounting firms, the Republicans and now Chairman Pitt are trying to circumvent the Sarbanes-Oxley legislation by making certain that the board does not include any reform-minded persons," Lynn E. Turner, a chief accountant at the SEC during the 1990s, told the Times. "If we lose Biggs, we lose a reform-minded board."
The paper reported that Biggs said through a spokesman that the commission had not offered him the job and declined to comment further.
Pitt lashed out at his critics, accusing them of politicizing the selection of the new accounting cop. "The deliberate plants of false information about the Accounting Oversight Board most certainly hurt the SEC, not so much because it may impair our ability to reach unanimity [on the new chairman] but because it has been done to politicize the agency," Pitt said in an interview with the Financial Times. "As the head of an independent regulatory body, I deplore these false stories."
Meanwhile, on Friday, the White House reportedly sent Anne Womack, an assistant press secretary, to serve as a senior adviser to Pitt on strategic communications and planning. It's unclear whether sending Womack to the SEC was motivated by the Bush Administration's unhappiness over the leaks concerning Biggs's possible selection or by some other reservations by the Administration about Biggs's possible appointment.
"Any time I can find a talented, smart, and articulate individual to assist in making sure our various constituencies understand my views, I would jump at the chance," Pitt told theFinancial Times, noting that many former White House officials had moved to the SEC in the past. "Any criticism of SEC communications has absolutely no validity in my view, and certainly no application to my seeking Anne out."
FASB Issues Exposure Draft
The Financial Accounting Standards Board (FASB) issued an exposure draft for an amendment to Statement No. 123, Accounting for Stock-Based Compensation. Officials at the independent accounting-rulemaking organization said the purpose of the proposed amendment is twofold:
Reader Comments» Post a comment