Two Deloitte & Touche partners have settled Securities and Exchange Commission charges alleging that they engaged in improper professional conduct during their audits of Delphi Corp.

Nicholas Difazio and Duane Higgins, Deloitte’s engagement partners on the 2000 and 2001 audits of the auto parts maker’s financial statements, were found by the SEC to have failed to obtain sufficient competent evidential matter to afford a reasonable basis for the opinion rendered by Deloitte, to exercise due professional care in the planning and performance of the Delphi audit, and in performing the audit to identify material departures from GAAP in the financial statements.

Both Difazio and Higgins consented to the SEC’s order without admitting to or denying the allegations in the findings.

Under terms of the order, Difazio and Higgins are both unable to appear or practice before the SEC, although Difazio can reapply after three years and Higgins after two years.

According to the one SEC order, the commission found that Difazio, the lead engagement partner, engaged in improper professional conduct in auditing regarding three specific issues.

One issue involved Delphi’s improper accrual of an estimated warranty expense by its former parent as a direct charge to equity in the second quarter of 2000, rather than as an expense of the period in accordance with GAAP. Another issue focused on Delphi’s improper classification of most of a $237 million payment settling the former parent’s warranty claims to pension and other post-employment benefit “true-up,” causing the amount to be accounted for as prepaid pension cost in the third quarter of 2000 in contravention of GAAP. The third related to Delphi’s failure to account for the 2000 fourth quarter sale of certain batteries and generator cores, at the same time it made a side agreement to repurchase that inventory, as a financing transaction, as required by GAAP.

In a separate order, the SEC found that Higgins, the audit engagement partner, engaged in improper professional conduct regarding the three issues, as well as in connection with Delphi’s failure to account for the simultaneous execution of agreements to sell and repurchase precious metals in the fourth quarter of 2000 as a financing transaction, as required by GAAP.

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