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In settlement of the SEC's charges, Deloitte will pay $50 million, consisting of a $25 million penalty in the federal court action, subject to court approval, and an agreement to pay another $25 million in settlement of the administrative proceeding. In the federal court complaint, the SEC charged Deloitte with failing to implement audit procedures designed to detect the illegal acts at Adelphia. Specifically, Deloitte issued an audit report containing an unqualified opinion on Adelphia's financial statements for fiscal year 2000 while Deloitte knew or should have known that Adelphia: (a) failed to record all debt on its balance sheet or otherwise failed to disclose that it had improperly excluded $1.6 billion in debt from its balance sheet (b) failed to disclose significant related party transactions and (c) overstated its stockholders' equity by $375 million. Even though Deloitte identified Adelphia as one of its highest risk clients, Deloitte failed to design an audit appropriately tailored to address audit risk areas that Deloitte had explicitly identified.
Deloitte and touche professional#
The SEC order finds that Deloitte engaged in improper professional conduct and caused certain of Adelphia's books and records violations by failing to detect a massive fraud perpetrated by Adelphia and certain members of the Rigas family. The SEC's charges against Deloitte are contained in an administrative order issued by the SEC and a complaint filed by the SEC in federal court in Manhattan. When auditors turn a blind eye toward misconduct on a high-risk client and allow a fraud of this magnitude to go undetected, the consequences will be severe."
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Schonfeld, Director of the SEC's Northeast Regional Office said, "What is especially troubling here is that Deloitte recognized the risk of fraud posed by this client at the outset. The $50 million payment will be deposited into a fund established to compensate victims. In addition, the Commission filed a federal district court action alleging that Deloitte failed to implement audit procedures designed to detect the illegal acts at Adelphia. The Commission issued an Order that finds that Deloitte engaged in improper professional conduct and caused Adelphia's violations of the recordkeeping provisions of the securities laws because it failed to detect a massive fraud perpetrated by Adelphia and certain members of the Rigas family. Washington, D.C., ApThe Securities and Exchange Commission today announced that Deloitte & Touche LLP has agreed to pay $50 million to settle charges stemming from its audit of Adelphia Communications Corporation's fiscal year 2000 financial statements. SEC CHARGES DELOITTE & TOUCHE FOR ADELPHIA AUDIT FOR IMMEDIATE RELEASEÄ¢005-65 Deloitte to Pay $50 Million to Settle SEC Charges Deloitte & Touche for Adelphia Audit