In recent years auditors have not felt that way they

Info icon This preview shows pages 38–39. Sign up to view the full content.

View Full Document Right Arrow Icon
about misleading its members than about offending management. In recent years auditors have not felt that way. They have instead generally viewed the CEO, rather than the shareholders or directors, as their client. That has been a natural result of day-to-day working relationships and also of the auditors' understanding that, no matter· what the board says, the CEO and CFO pay their fees and determine whether they are retained for both auditing and other work. The rules that have been recently instituted won't materially change this reality. What will break this cozy relationship is audit committees unequivocally putting auditors on the spot, making them understand they will become liable for major monetary penalties if they don't come forth with what they know or suspect." -Warren Buffett, Berkshire Hathaway annual report Courts Courts provide remedies to individuals and companies that suffer damages as a result of material misstatements in financial statements. Typical court actions involve shareholders who sue the company and its auditors, alleging that
Image of page 38

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Module 1 I Framework for Analysis and Valuation 1-32 &becompany disclosed, and the auditors attested to, false and misleading financial statements. Shareholder lawsuits chronically in the news; although, the number of such suits has declined in recent years. Stanford Law School's Securities Class Action Clearinghouse commented that "Two factors are likely responsible for the decline. First, wsuits arising from the dramatic boom and bust of U.S. equities in the late 1990s and early 2000s are now largely oehind us. Second, improved corporate governance in the wake of the Enron and WorldCom frauds likely reduced the actual incidence of fraud." Nevertheless, courts continue to wield considerable power. For example, SEC and the New York District Attorney successfully brought suit against Adelphia Communications Corporation and its owners on behalf of the U.S. Government and numerous investors, creditors, employees and Others affiliated with the company. The press release announcing the settlement read, in part: Washington, D.C., April 25,2005- The Securities and Exchange Commission today announced that it and the United States Attorney's Office for the Southern District of New York (USAO)reached an agreement to settle a civil enforcement action and resolve criminal charges against Adelphia Communications Corporation, its founder John J. Rigas, and his three sons, Timothy J. Rigas, Michael J. Rigas and James P.Rigas, in one of the most extensive financial frauds ever to take place at a public company. In its complaint, the Commission charged that Adelphia, at the direction of the individual defendants: (1) fraudulently excluded billions of dollars in liabilities from its consolidated financial statements by hid- ing them on the books of off-balance sheet affiliates; (2)falsified operating statistics and inflated earnings to meet Wall Street estimates; and (3) concealed rampant self-dealing by the Rigas family, including the undisclosed use of corporate funds for purchases of Adelphia stock and luxury condominiums.
Image of page 39
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern