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Who's responsible - The Internal Auditors, the CAO or the External Auditor?

The Wall Street Journal reports that Valeant Pharmaceuticals International, based on an internal review has found issues in their accounting practices.

This will force a restatement of several years.

Who would you hold responsible?

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I do NOT like the choices. The question/choices is trying to blame the people who should have caught the "fraud" but NOT the "perpetrators".

You forgot to include, (1) The Board of Directors (2) Management

The whole system has it's share of blame too. Wall Street analysts have known Valeant's business model for years. In fact, I read that Valeant is NOT the only firm with the business model.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

While the Board & Management may be responsible, it is the responsibility (fiduciary) of the CAO/CFO not to purposely falsify information.

Note I said purposely. So if the Board/CEO dictated this action, then they share responsibility, but the CAO/CFO are not vindicated for their actions.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

I am NOT vindicating the CFO/CAO, I am just pointing out that you forgot to include the Board and Management (which includes both the CFO/CAO). It is not like the CFO/CAO (even with their fiduciary duties) concocted the scheme on their own.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I agree, but if we were to talk in general as opposed to specifically Valeant's situation, then it is possible that the three groups mentioned may be solely at fault.

Lyle Newkirk
Title: CFO
Company: Corrigo Incorporated
(CFO, Corrigo Incorporated) |

Management is responsible for preparation of financial statements. Regardless of who made what error, management is responsible. If somebody's job is on the line (and it should be) it may be appropriate for the audit committee with the help of outside counsel to review the facts to see who should be dismissed.

Lawrence Caffrey
Title: Accountant / Bookkeeper
Company: SES Foam
LinkedIn Profile
(Accountant / Bookkeeper, SES Foam) |

Management is always responsible.

The external auditor is not responsible for detecting fraud. If the accounting practices involved weak internal controls that the external auditor did not identify and / or report to the Board, they share responsibility.

If the weak internal controls were reported to the Board and the Board took no action, the Board shares responsibility.

Lynn Fountain
Title: MBA CGMA CRMA, Past Chief Audit Executiv..
Company: Business Consultant
LinkedIn Profile
(MBA CGMA CRMA, Past Chief Audit Executive, Business Consultant) |

Lyle and Lawrence are correct. Management is responsible and if the restatement is something of significance the board should do an investigation to understand where controls failed

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Valeant's case is more than just financial restatements. The whole business model of creating a shadowy pharmacy as a distribution channel to increase sales does NOT stop with Management. At the very least, the Board is complicit and failed to protect the shareholders (public).

Kevin Kelso
Title: Controller
Company: The Arc of Delaware
(Controller, The Arc of Delaware) |

If they are an SEC registered company, ultimately Management is responsible.
https://www.sec.gov/rules/final/33-8238.htm (Per Section 404 of the Sarbanes-Oxley Act of 2002). There is very little wiggle room, if any at all.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

The Board. Fiduciary duty to the shareholders comes with those board seats.

There are many on the right and the left who believe that corporations are run by an old boys club and get away with all sorts of nefarious, insider dealings or are rewarded with lucrative stipends so long as they don't rock the boat.

The easiest way to exorcise this is to hold boards personally accountable. Make liability stick. Put shareholder's interests first.

David Dobrin
Title: President
Company: B2B Analysts, Inc.
(President, B2B Analysts, Inc.) |

Excuse me? Management is responsible? Not the people with specialized knowledge and training whose job it is to oversee activities and ensure compliance? I'm in the software industry, so I thought I knew everything there was to know about evading responsibility and blame-shifting (as in "it's the customer's fault that the software didn't work because they...."), but I can see that the CFO industry can match my colleagues beat for beat and note for not.

Anonymous
(CFO) |

As Emerson said, the CFO/CAO is/are part of management. So, there is no blame shifting from the "CFO industry".

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