Listed below are representative accounting malpractice cases:
- Invotex was engaged as experts to represent a regional CPA firm that had audited the financial statements of a healthcare entity for several years. The healthcare entity declared bankruptcy more than one year after the last audited balance sheet date. Subsequently, the bankruptcy trustee sued the CPA firm claiming that the firm violated generally accepted auditing standards and should have informed the Board of Directors of the entity about certain financial transactions and related party transactions that allegedly lead to the bankruptcy. The bankruptcy trustee further alleged that the CPA firm should have included an emphasis paragraph in its audit opinion regarding the entity’s ability to continue as a going concern. Invotex professionals reviewed thousands of documents, including the auditor’s work papers, bankruptcy court filings, Board minutes and various correspondence. We analyzed and challenged the opinions expressed by the opposing expert and evaluated the alleged damages. Shortly after Invotex experts issued their expert rebuttal reports and gave deposition testimony, the case settled before trial with a favorable result for our CPA firm client.
- Invotex was engaged to consult with legal counsel representing a financial executive of a financial institution. The financial institution was accused of filing misleading financial statements with both its regulator and the SEC. There were numerous highly complex and judgmental accounting issues, including derivatives, investment impairments, consolidation of special purpose entities, etc. Invotex professionals reviewed tens of thousands of documents, including auditor work papers, deposition transcripts, and audit committee minutes. We have assisted legal counsel with their preparation for depositions by providing key documents and explaining the complex accounting and financial reporting issues in plain English. This is an ongoing engagement.
- Invotex was engaged by a major insurer pursuing accounting malpractice claims against two of the large international accounting firms. The case involved a damage claim of over $100 million. The insurer’s position was that its decision to offer surety-like bonds to a company had been in reliance on the company’s audited financial statements. Due to an extraordinary level of claims, the insurer eventually took over management of the company. Upon review of the company’s books and records, the insurer found a gross understatement of claims liability and gross overstatement of available assets to meet those liabilities. Invotex assisted counsel in both GAAP and GAAS interpretations. Our professionals reviewed several years of auditor work papers in order to render an independent opinion as to the audit firm’s compliance with GAAS in its audit work. The case is presently pending trial.
- Invotex was engaged as the expert for the defense, on both liability and damages, in a case involving accounting malpractice, negligence and fraud alleged against a large international CPA firm. The CPA firm had audited the financial statements of a publicly traded company with stock traded on the NASDAQ stock exchange for many years. The audited company ultimately filed for bankruptcy. The malpractice action was brought by a Bankruptcy Trustee in his capacity as Litigation Trustee and as the Assignee of Claims of certain secured creditors. The action stemmed from extensions of credit, all of which were allegedly made in reliance upon financial statements, 10Ks and 10Qs of the debtor audited by the CPA firm. The Bankruptcy Trustee asserted that the CPA firm had allowed the debtor to falsely report profits to its regulators and the SEC despite years of alleged operating losses. Invotex reviewed voluminous records and documents, bankruptcy court filings, Board minutes, depositions, financial statements, including 10Ks and 10Qs, publicly available information, and audit work papers for compliance with GAAP and GAAS. Invotex professionals developed several economic models and financial analyses to evaluate the plaintiff’s claim for damages. Invotex professionals additionally reviewed and analyzed opposing expert reports, attended depositions, provided deposition testimony and prepared the case for trial. The case settled before trial with a favorable result.
- Invotex was engaged by a large international accounting firm that had been sued for malpractice by a former client, one of the largest national fast food franchisors trading on the NASDAQ. The plaintiff’s claims included breach of contract, failure to conduct an audit in accordance with GAAS, improperly certifying that its financial statements were free of misstatement, and improperly opining that its financial statements were prepared in accordance with GAAP. The GAAP issues included accounting for Goodwill, the Sale of Real Estate, Post Employment Benefits, Inventory, Capitalized Interest and Consolidation. Invotex reviewed the accounting work papers in question to develop an independent assessment of the correct accounting treatment. Invotex assisted counsel in reviewing the accounting and presenting the issues. The case was settled before trial in favor of our client.
- Invotex was engaged to provide expert witness testimony representing a local CPA firm that had performed audit and compilation services for its client. The plaintiff purchased an ownership interest in the CPA firm’s client. The purchase price was based on a multiple of historical revenues. After a period of poor post-acquisition financial results, the plaintiff filed suit against the CPA firm alleging that the plaintiff had overpaid for its purchased interest, based on its reliance upon allegedly misstated revenue reported in the audited financial statements. Invotex professionals performed forensic accounting procedures over thousands of customer billing records and identified questionable billing practices subsequent to the audit date in support of our client’s position that the audit and compilation services were conducted in accordance with professional standards. This is an ongoing engagement.
- Invotex was engaged to consult on a case involving allegations of accounting malpractice against a regional accounting firm that performed both internal and external audit functions for a bank. The malpractice action stemmed from a series of loans that circumvented internal control procedures and escaped audit detection due to inadequate testing procedures. Our consultants reviewed loan files, financial statements, audit work papers for compliance with GAAP and GAAS, attended depositions, and prepared the case for trial. The case settled before trial.
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