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Options scams put heat on auditors

Options scams put heat on auditors

by Rick Turoczy on June 30, 2006

The steady stream of stories detailing stock-option abuses in Silicon Valley is placing an uncomfortable spotlight on auditors, the firms companies hire to examine financial records.

Each new revelation adds to worries that it was common for companies across the country to manipulate option prices during the 1990s, and that the practice might have continued even after the Sarbanes-Oxley Act’s reforms in 2002. The scandal also raises fears that the “Big Four” audit firms — which scrutinize the financial statements for most of the nation’s biggest corporations — either misinterpreted the rules, overlooked the warning signs or approved the practices that allowed companies to supercharge options.

“This appears to be a fairly significant failure of the audit firms,” said Damon Silvers, associate general counsel for the AFL-CIO, which invests pension savings for union members. “The question is, ‘What test did you use?’ If the answer is, ‘We had no test,’ then it’s a question of diligence.”

Options scams put heat on auditors

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