CASE STUDIES BY CATEGORY
Forensic Accounting & Financial Reorganization
Asbestos Trust Management
No Harm, No Foul
It's not easy to tell your client that it doesn't have a case, but in this engagement, our analysis prompted the withdrawal of a law suit that saved the legal team and the company it represented from enlisting in a likely losing battle.
After an acquisition soured, Gleason & Associates was retained by counsel for the acquiring company to analyze whether the seller's Big Four accounting firm had negligently issued an unqualified audit opinion on the company's financial statements. The charge was that the company had left its books open and recorded sales that actually occurred after year end in the current year.
Hired to analyze and provide an opinion on liability as well as damage issues, our analysis concentrated on four successive questions: How significant was the sales cutoff issue? Was the accounting firm's audit work deficient? Did the buyer rely on the audit opinion when evaluating the acquisition? What, if any, damages were incurred? Answers to these questions exposed potential problems with our client's case.
Our review of the seller's financial records revealed that although the sales cutoff issue was significant, its books had habitually remained open past appropriate end-of-year cutoffs. Even though the seller's accounting firm had failed to identify the problem, the most recent year's financial results were not materially impacted by the extension of that year because the prior year's sales cutoff had been extended as well.
In addition, the accounting firm that the buyer had engaged to perform due diligence on the seller also failed to flag the cutoff issue.
It was not apparent in our analysis of the buyer's financial models that it had based its acquisition decision or purchase price on the seller's historical data.
The buyer's acquisition models did not reflect other financial concerns raised by its own accounting firm.
Based on the combination of these factors, we concluded that damages would be difficult to document and prove, even if liability could be established.
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