Auditing

PCAOB Probing Deloitte Audit

First formal investigation of a Big Four firm by the accounting regulator is inadvertently disclosed by the SEC.
Stephen TaubJuly 8, 2005

The Public Company Accounting Oversight Board is investigating Deloitte & Touche LLP’s 2003 audit of Navistar International Corp., according to Bloomberg, citing a document it says authorizes the probe.

This is the PCAOB’s first formal probe of a Big Four firm, the wire service pointed out. Bloomberg also noted that the two-page order, issued in May, was inadvertently disclosed by the Securities and Exchange Commission.

The accounting regulator stated in its order that Deloitte may have failed to comply with at least five auditing standards. The PCAOB added that the firm’s actions, if true, would be “in possible violation of [Sarbanes-Oxley], the rules of the board, the provisions of the securities laws relating to the preparation of and issuance of audit reports and the obligations and liabilities of accountants,” according to the report.

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Bloomberg stressed that the document does not detail Deloitte’s alleged transgressions. The wire service noted, however, that in January Navistar disclosed in a regulatory filing that it would need to restate its results for fiscal 2002 and 2003 and the first three quarters of 2004. The restatement stemmed from errors in its financial statements relating to the securitization of assets at its finance subsidiary, Navistar Financial Corp.

In April, Deloitte agreed to pay $50 million to settle charges stemming from its fiscal 2000 audit of Adelphia Communications Corp. It represented the largest penalty the SEC has levied against an accounting firm, according to Bloomberg.

As for the SEC’s inadvertent disclosure of the order: Deloitte spokeswoman Deborah Harrington told the wire service that “if there were a PCAOB investigation, it would be confidential.” PCAOB spokesman Michael Shokouhi told Bloomberg he couldn’t confirm or deny whether an investigation were under way.

According to the wire service, the SEC received a copy of the investigative order from the PCAOB on May 25 and made the document available in its reference room during the week of June 20, adding that the order was marked “non-public.”

“The document was misdirected to the public file,” SEC spokesman John Heine told Bloomberg. “We are taking appropriate steps to improve procedures.”