Grant Thornton insists client remove Chairman, is removed as auditor

Here’s an interesting story coming out of Dallas:

Embattled multi-level marketing firm Mannatech has fired its independent auditor, Grant Thornton, after the auditor gave the company an ultimatum: Remove Chairman and founder Sam Caster from the company or find yourself another auditor.

So they found themselves another auditor, BDO Seidman, and let Grant Thornton go. The strange thing is this part of their press release:

There were no disagreements between Mannatech and Grant Thornton on any accounting principles or practices, financial statement disclosure, or auditing scope or procedure.

It’s hard to imagine why GT would insist the company dump their Chairman, given the above quote. But it makes no mention of internal control or corporate governance at the company, which may have caused some concern:

Caster stepped down as CEO in August. His decision came a month after the Texas Attorney General filed a lawsuit charging Mannatech, Caster and other parties with illegally marketing and selling its dietary supplements as a way to cure and treat diseases, illnesses or serious conditions like cancer.

The company has made a concerted effort to fix the problems that led to the lawsuit, including updating their sales and marketing materials and guidance for employees. With adequate monitoring, solidifying procedures and policies and setting expectations should ensure Mannatech recovers in the future.


Auditor, noun: an accountant with a grudge

From Lickspittle Shite-a-bed comes this very funny “history” of auditors, including this gem:

Stocktaking is a strange version of foreplay perculiar to auditors. The audit pack will arrive at an industrial premises at 6am in the morning and demand to know how many widgets they have. The auditors will then spend many happy hours counting the widgets and comparing their results to the figures on the company stock system. The more unexpected discrepancies that they find, the more sexually aroused they become. If at the end of the day they conclude that the company has been overstating their widgets, they will spontaneously orgasm en masse and begin to practice their double-entry by way of celebration. It doesn’t have to be widgets, it could be grains of sand. So long as its something which there is absolutely no value in counting, it will do the trick.

Simply hilarious. Have a great weekend, busy season is nearly over!

(Via Accman.)


SEC looking into auditors in options backdating investigation

The SEC has announced it’s going to be including companies’ external auditors in their investigation into options timing abuses commonly known as backdating.

Authorities were said to be looking at what auditors knew about company manipulation of options’ grant dates and exercise prices to boost their value to executives who got them. About 30 companies are known to be involved in the largest multi-agency probe into corporate wrongdoing in two years, with fraud and insider trading charges seen as possible outcomes.

The SEC typically expands its investigations beyond corporate executives immediately involved to look at auditors, directors, lawyers and others who may have known about the misconduct or been in a position to halt it.

Ah, corporate governance. The hot topic gets hotter. Corporate governance to Chartered Accountants is basically an issue of organizational effectiveness. Audit committees doing their job. Boards doing their job. Everything running smoothly from a company’s health point of view. But when securities regulators are involved, it’s all about making sure they didn’t let the executives get away with something that isn’t in the investors’ best interests.

Backdating involves retroactively dating the grant and exercise price of an options issue to precede a rally in the underlying shares, maximizing option profits for executives. The practice can pose disclosure, tax and accounting problems.

Spring-loading involves looking forward to set the grant date and exercise prices ahead of the release of positive news expected to raise share values, also boosting option profits.

Originally I’d thought the issue with backdating was reducing their value at the grant date, thereby reducing the expense the company reports on their income statement. But I guess I was wrong. It is apparently even more insidious than boosting the company’s profits! This is about putting more cold, hard cash in executives’ pockets.

(Via the AAO Weblog.)