Do Audited Financials Always Offer Enough Protection?

Esteemed auditing firm Ernst & Young is a household name. DI Wire recently shared details about the SEC having levied the largest fine in history against the audit firm after members were caught cheating on ethics exams, then misleading the investigation. SEC Fines Ernst & Young $100 Million After Auditors Cheat on Ethics Exams, Mislead Investigation 

DI Wire also posted several recent articles about UDF, an investment sponsor that sold a series of REITs, where the Companies were to invest in residential real estate developers and private homebuilders. Several UDF executives were recently sentenced for what many refer to as a Ponzi-like scheme. UDF Executives Facing 20 Years in Prison Lose Bid to Remain Free Pending Appeal

Both Ernst & Young and UDF fooled some of the sharpest minds in their respective industries.

It’s one thing to have involvement of independent third party valuation firms and audited financials by big name accounting firms. But entirely another when the trusted advisors running point are playing something of a shell game behind the scenes, as happened within both of the companies mentioned above. Both UDF and Ernst & Young’s standards were proven to be more a suggestion than reliable methodology in the FBI and SEC’s investigations.

Our clients have been able to avoid some big sponsor blow ups that have impacted so many in our industry.

Audits are important, but auditors tend to focus on debits and credits, and if they balance at the end of the day. They don’t necessarily watch as closely who pockets the money flows through between points A and B, or if it follows the path dictated by the governing documents. We do.

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