That could be about to change after it was revealed last week that PricewaterhouseCoopers (PwC), the world's biggest accountancy firm, faces a $2bn (£1.2bn) lawsuit linked to Bernard Madoff's record $65bn investment fraud.

PwC was not Madoff's auditor. That job famously went to a three-person outfit without the ability or inclination to ask the necessary questions of its powerful client. The case against PwC's Canadian arm, brought by investors who lost their savings via the Madoff "feeder fund" Fairfield Sentry, is that the firm was negligent in failing to spot that Fairfield Sentry's $7.2bn of assets invested with Madoff did not exist.

The firm, it is claimed, should have spotted the "red flag" that Madoff not only executed the fund's investment strategy, but was the custodian of the money. PwC Canada stresses that it was not Madoff's auditor, adding that its auditing of the fund's financial statements "fully complied with professional standards". The case against PwC follows a lawsuit filed against KPMG claiming that the big four firm should have spotted Madoff's scam when auditing the main fund of US fund manager Tremont, which lost $213m on Madoff.

Read the full story here on the Telegraph website.

Proven systems already in use by the US Internal Revenue Service (IRS) should be adopted by the Securities and Exchange Commission (SEC) to deter and detect Ponzi schemes of the sort perpetrated by Bernard Madoff, according to a new white paper by NERA Senior Vice President Marcia Kramer Mayer.

"While the reforms proposed by the Obama administration are an excellent start, they don't go far enough in ensuring that we won't see another Madoff-type fraud in the future," said Dr. Mayer, a financial economist. "A common feature of Ponzi schemes is that investment advisers overstate the account assets that they report to clients. The IRS's simple, proven approach of routinely cross-checking reported data would be ideal for the SEC to adopt in its regulation of investment advisers, and such a system could be implemented at no cost to taxpayers."

Read the full story here on the Street Insider website.

The current economic downturn and the uncertainty of the timing of a rebound will more than likely trigger an increase in the number of professional liability claims.

"We've seen an increase in frequency of potential claims and requests for subpoena assistance," revealed Jeff Day, assistant vice president of underwriting for CNA, the underwriter for the American Institute of CPAs' Professional Liability Insurance Program. "We do expect some carriers to make changes to their programs and possibly even leave the marketplace."

Clients are less tolerant of losing money and employees are more likely to steal money when times are tough, noted Michelle Duffett, chief executive at Geneva, Ill.-based Insight Insurance Services. "Our biggest concern is with defalcations," she said. "Invariably, a lawsuit says the accountant should have caught something before it happened, regardless of the level of service the accountant was engaged to perform. We've had lawsuits against accountants where all they did was prepare tax returns."

Read the full story, authored by Roger Russell, here on the WebCPA website.

Accountancy giant PricewaterhouseCoopers is facing deepening scrutiny over its audit of Satyam - the IT giant known as "India's Enron" - whose founder admitted fabricating cash and other non-existent assets of more than £1 billion ($2.59 billion).

The audit of Satyam was not, as previously thought, carried out by PWC's main operation in India but by a small subsidiary called Lovelock & Lewes, according to the Central Bureau of Investigation, which looks into serious and complex Indian fraud cases.

Read the full story here on the New Zealand Herald website.

For the past six months, the group has gagged the Joint Disciplinary Scheme (JDS), the profession's watchdog, by preventing any mention of the report. Over the weekend, however, it dropped the injunction following a High Court hearing.

The JDS has now sent the report to Equitable's regulator, the Financial Services Authority (FSA), and the Institute of Chartered Accountants in Scotland, to whom E&Y is accountable.

Read the full story here on the Telegraph website.

Vitesse Semiconductor Corp., a Camarillo company still recovering from an accounting scandal, has reached a settlement in its lawsuit against its former auditing firm.

KPMG LLP will pay Vitesse $22.5 million and forgive all past indebtedness, Vitesse announced Monday. The settlement also releases both sides of all claims.

Vitesse filed suit against KPMG in June 2007, charging that KPMG was negligent in its auditing of Vitesse’s stock option grants and financial statements from 1994 to 2000. It later added 2001 to 2004 to the suit.

The company did not return a call for comment Monday. But response to the settlement was practically gleeful on VitesseInvestor.com, where shareholders post news and updates about the company. The original post to the news was “Yipee!!!!!,” a response that following commenters echoed.

Read the full story here on the Ventura County Star website.

Did fair value accounting standards, issued by the Financial Accounting Standards Board, and required to be applied for fiscal years ending subsequent to November 2007, hasten the onset of the current economic and financial crisis? What will be the impact of these standards on legal and accounting activities in the future? What will be the impact of FASB's April 2009 rule change giving financial institutions more flexibility in valuing assets?

Steven M. Packer and Stanley V. Todd, members of the Tax Accounting Group at Duane Morris, tackle these questions in an article that appeared in The Legal Intelligencier.

You can see the full article by clicking here.

MFS founder Michael King and the auditors to his failed financial services empire are at the centre of a $1 billion lawsuit launched by disgruntled investors.

The legal action, filed with the Federal Court last Friday, is seeking damages on behalf of eight investors in the frozen Premium Income Fund (PIF), which is now under the control of Jenny Hutson's Wellington Capital.

The respondents were all board members of MFS Investment Management, the responsible entity of PIF until Wellington Capital's takeover in October last year.

Read the full story here on the GoldCoast.Com website.

Legal and accounting experts say that many accounting firms that failed to detect the alleged fraud at Bernard L. Madoff Investment Securities could now be liable for missing indications of potential wrongdoing.

Madoff’s firm was audited by Friehling & Horowitz, a firm in the New York metropolitan area that has one active accountant.  Lynn Turner, former chief accountant for the Securities and Exchange Commission (SEC), said that it was difficult to believe that the auditors of the funds that invested in Madoff’s firm examined Madoff’s auditor in order to establish confidence and that, if in fact they did not, investors would have to hold these auditors accountable.  Some firms involved in audits related to Madoff declined to comment because of increasing litigation, but others say that they were not obligated to investigate Madoff’s auditor and that their duty was to verify numbers, not to detect fraud.

The SEC is being criticized for exempting private financial partnerships such as hedge funds from the rule put in place under the Sarbanes-Oxley Act of 2002 requiring auditors of brokerage firms to be registered.

By 2008 the assets managed by these private financial partners totaled approximately $1 trillion.  The SEC has acknowledged that it failed to adequately oversee Madoff.

Read the full article here on the Wall Street Journal Website (subscription required).

As more details unfurl in the Bernard L. Madoff fraud case, so do the lawsuits. And the big accounting firms, which oversaw many of the feeder funds that funneled billions of dollars into what prosecutors describe as the largest Ponzi scheme ever perpetrated, are likely to be among the defendants.

Though Bernard L. Madoff Investment Securities itself was audited by small firms, questions are arising over how major firms like PricewaterhouseCoopers and KPMG overlooked several red flags related to the operations over a number of years. The big accounting firms are likely to face queries about why they gave their seal of accounting to the astoundingly steady positive returns booked by a fund manager whose investment strategy was nearly completely opaque.

One investor in a feeder fund, New York Law School, has already sued BDO Seidman, the auditor of one of its money managers, arguing that the firm failed to notice warning signs related to the $50 billion scandal.

Read the full story here on the New York Times website.