Easy Prey Investors by Al Rosen

Author:Al Rosen
Language: eng
Format: epub
Publisher: MQUP

(ii)

misrepresentation or intentional omission of events, transactions or other significant information; and

(iii)

intentional misapplication of accounting principles relating to amount, classification, manner of presentation or disclosure. [27]

The decision stresses in this passage that Livent’s external auditors were deceived not by management’s unintentional acts or omissions but by management’s deliberate efforts to dupe the auditors. This can be interpreted as placing a higher standard on a plaintiff to prove auditor negligence or misconduct. Given the expense involved in such a lawsuit, investors are unlikely to pursue such a case. Instead, we need legislation that would legally hold auditors to account and protect equity investors from auditor neglect.

5Additionally, the trial judge stated:

the leading decisions in (Canada) contemplate a corporation bringing an action against its auditors for failure to detect wrongdoing by directors. [271, emphasis added]

In this passage, the court seems to be inadequately aware that external auditors require corporate officers to sign audit engagement contracts. These contracts pass responsibility for detecting corporate fraud back to the company’s management and board of directors. Since IFRS enables management to exercise considerable choice in preparing financial reports, we have to wonder about the definition of “wrongdoing.” Given this lack of awareness by the courts and the flexible interpretation of management wrongdoing, we find yet another reason why we need legislation to override the Hercules decision.

We’ll look further in subsequent chapters at some of these issues raised in the Livent case.

SUMMARY

Despite occasional feeble gestures by self-regulators and groups that claim to act on behalf of investors, self-regulation in financial reporting remains seriously deficient. Our lawmakers need to pay attention. They can no longer ignore a situation that continues to lead to investor losses and needs their urgent attention. In basic terms, self-regulation has stopped being workable, and must be replaced soon.

As we’ve pointed out in previous chapters, the following groups and organizations are supposed to safeguard the interests of shareholder-investors:

•Boards of directors;

•Corporate officers;

•External auditors;

•Provincial securities commissions;

•Stock exchange officials;

•Corporation and securities legislators and regulators;

•Stock underwriters;

•Financial analysts;

•Your personal investment advisor;

•Self-regulating bodies that oversee mutual fund salespeople, investment advisors, external auditors and lawyers;

•Our court system;

•Police fraud departments;

•Our Crown attorneys, and

•Our elected politicians / lawmakers.

How is it possible that all of these groups could fail to notice oncoming multi-million-dollar financial collapses of companies like Nortel and Sino-Forest and dozens of others?

Our theoretical investor protection system in Canada quite clearly has either broken down or did not exist in the first place. Our negligence, as citizens, lies in not demanding change from our lawmakers. At the very least we need an equivalent type of body in Canada to the US Securities and Exchange Commission. Instead, lawmakers who could create such a body continue to pass the buck, and we allow them to do it.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.