Change your audit partners, do-si-do
To replace its fired KPMG, Fannie Mae has selected Deloitte & Touche as its auditor:
Fannie Mae yesterday announced the hiring of Deloitte & Touche LLP as its new outside auditor, two weeks after firing KPMG LLP in the wake of accounting errors that could cost the housing finance company as much as $9 billion in previously posted profit.
In a practical sense, Fannie’s choice was very limited, since under Sarbanes-Oxley accountants are more than strongly discouraged from serving multiple masters:
The practicing CPA should be even more cognizant of any potential violations of independence or conflicts of interest due to heightened scrutiny on the provision of public accounting services
Given Fannie’s size and importance, it warrants auditing by one of the Big Four accounting firms, but of those:
- KPMG was the banished incumbent.
- Ernst & Young was conflicted (having advised Fannie Mae in defending its accounting practices).
- PriceWaterhouse Coopers audits Freddie Mac, Fannie Mae’s fellow GSE and major competitor.
leaving Deloitte & Touche as the Fortinbras of this particular drama.
In fact, Deloitte & Touche had assisted OFHEO in uncovering the questionable accounting practices:
Deloitte & Touche is not unfamiliar with Fannie’s accounting problems. Deloitte was instrumental in a year-long investigation by Fannie’s regulator, the Office of Federal Housing Enterprise Oversight, that uncovered the problems in the fall.
Defending Fannie Mae or auditing its competitor are Sarbanes-Oxley problems, but working for its regulator is not. As we all know, government is so pure…
