By Stacie Clifford Kitts, CPA 

I’ve watched with interest the online clash between CEO Patrick M. Byrne of Overstock.com and a handful of bloggers and journalists. The basic issue appears to be a consensus, among this group that Mr. Byrne is (allegedly) a crook [and maybe a little unstable] who is also (allegedly) cooking the books of the company he is charged with running.

Sam Antar who has the best bio snippet I have read to date….

I am a convicted felon, former CPA, and former CFO of Crazy Eddie. There is a saying, “It takes one to know one.” I teach law enforcement, professionals, and students about white collar crime and how to catch corporate miscreants….

In my blog, I expose white collar crooks just for the fun of it…

….really really R-E-A-L-L-Y dislikes Mr. Byrne. Based on Mr. Antar’s “it takes one to know one” philosophy, Sam insists that he knows Patrick pretty well.   

Mr. Antar has made this determination based on his analysis of the publically available financial information of Ovestock.com. You can read Mr. Antar’s many comments about Mr. Byrne at his acclaimed blog White Collar Fraud. 

Mr. Antar’s rehash of his part in the Crazy Edie fraud scandal at his website http://www.whitecollarfraud.com is also a good read. There is no doubt that this recount should be mandatory reading for all new staff accountants.

As for my take….

I’ve always believed based on my experiences working in both public accounting and industry, that the financial statement audit process [limited to large publically traded companies]was for the most part a silly practice that boiled down to ongoing compromises made by auditors to sustain the fine line walked to keep clients. Although the audit practice has tightened up -some – over the years i.e. the PCAOB, I think we are still looking at an overriding drive for accounting firm profit over good sense. 

Evidence you ask.

In my opinion, the fact that Overstock.com was able to find an audit firm amidst all the (alleged) controversy is evidence enough. It’s too bad that the audit firm’s work papers aren’t public information, because I would looove to get my hands on the Client Acceptance Form that KPMG put together to prove their acceptance of this client. If only to see how they have addressed these allegations.  [I hope they have really good practice insurance.]

Anyway…What’s a Client Acceptance Form you ask?

A Client Acceptance Form is a checklist that an auditor uses to decide whether they should accept a company as a client. This document incorporates questions about whether the firm believes that they have the proper knowledge, training, and staff to handle the engagement. However, it also wants to know things about the target client too. For instance, there are questions about the integrity of the company’s management, the chances that there is fraud in the financial statements, and questions regarding whether there is evidence that management may be motivated to commit fraud.

There appears to be plenty of evidence that the management integrity of Overstock.com is at least in question [if of course you believe the many  journalists and bloggers who have commented on  Overstock’s current woes]. This alone should have precluded an audit firm from accepting the engagement (in my opinion). Obviously, this acceptance is profit motivated, but KPMG – people – come on  -what – are  – you –  thinking.

If you would like to read, more about the controversy check out this recent post by Sam

Open Letter to the Securities and Exchange Commission: Conflicting Disclosures by Overstock.com Reveal Improper Audit Opinion Shopping

Post Script: I saw fraud unfold up close and in person at a public company I worked for in the 90’s. I was not part of the fraud scandal.  However, watching what happened after it was discovered makes for an interesting story.  Stay tuned for more on that truly fascinating tale.