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To: Ron Nairn who wrote (12207)	3/9/2003 10:38:14 AM
From: PlayTheKing	Respond to of 14101

PART 1 OF 2: Warning: Long rambling about accounting issues...please read before going to bed...it'll knock you right out, guaranteed. Hi Rondo, The CA firm might as well close up otherwise. I believe things are not so black and white as you suggest..The new firm would know the old firm's position and would have satisfied itself that it could defend its different position. You are correct in stating that things are not so black and white as I have suggested. However, what I do know is that CA firms do "lean" towards the client's side, if it means that they might potentially lose a source of income from that client. I believe that E&Y could care less about DMX and would not even blink about losing them as a client. The audit fees generated from DMX is immaterial to a firm like E&Y. Fees generated from the DMX engagements were likely equivalent to a "rounding error" to E&Y's overall financial statements. Audit engagements pave the way for accounting firms to provide more lucrative services, i.e Tax, Business Valuation, Prospectus work, etc. The real money is in special work. For a 3rd tier firm like Schwartz, DMX is a goldmine. DMX has transfer pricing issues, US GAAP issues, prospectus and potential US filing work to be performed. A small firm would bend over backwards to service DMX...and yes, even if that meant siding with DMX on certain "interpretations" of accounting pronouncements. Enron is a classic example, generating US$50million per year from auditing fees alone, the partner in charge turned a blind eye to the myriad of issues that was presented. Tax, consulting, system work, you name it, Andersen likely did it for Enron. No audit partner, no matter how much integrity s/he has, would walk away from that kind of income. If they did, I would bet that another Andersen partner would have been assigned to the Enron engagement...the fees generated was too great to say no. We do not know precisely that this was the matter that caused the company to change firms. It seems reasonable but it is not conclusive There are likely more issues that existed than we will ever know about. However, we may deduce what those issues were based on DMX's relatively simple organization structure and its operations. Oxo: Prior to the 80% acquisition, the investment in OXO was for a 20% ownership interest. Using either US or CAD GAAP, the transaction had to be recorded using either the cost or equity method. Under the cost method, the transaction would be recorded in DMX's books as a regular investment at cost. Under the equity method, though, things get a little grey. The first issue is to determine whether DMX had significant influence over OXO. If it did, then DMX would record its proportionate share of Oxo's revenues, expenses, assets and liabilities, i.e 20%. If it did not exercise significant influence, then DMX would record the investment under the cost method. Before switching to E&Y, DMX chose to use the cost method...Schwartz issued an unqualified opinion meaning they agreed to this treatment. However, JK pointed out that E&Y had reservations about the treatment. What E&Y likely concluded was that DMX did have significant influence requiring DMX to use the equity method. Looking back, I would speculate that E&Y presented the following facts: 1) DMX was Oxo's only source of revenue/financing; 2) DMX likely held a position on Oxo's board and potentially could influence the investment, operating and financing decisions of Oxo; (this is a tricky area) What it boils down to is that Oxo was dependent on DMX; I wouldn't be surprised if E&Y suggested that Oxo was actually a subsidiary of DMX. DMX likely objected and switched back to Schwartz. I cannot prove this...however, there are no other accounting issues I can think of that would have surfaced... TO BE CONTINUED

To: Ron Nairn who wrote (12207)	3/9/2003 10:59:24 AM
From: PlayTheKing	Read Replies (1) \| Respond to of 14101

PART 2 OF 2: An audit firm that cannot defend its audit is in trouble. This is not a fraud issue. This is a matter of rules interpretation. Schwartz has done DMX and itself a huge disservice, not to mention the shareholders who depend on their audits. GAAP is not clearly black and white. Rondo, you've hit the nail on the head. GAAP is not clearly black and white. You can always argue either side of an accounting issue persuasively, depending on which side will be most beneficial to you. And there are significant differences between US & Canada GAAP precedents. I have no idea what rules apply in Europe for private companies that do not have sales. Canadian GAAP generally follows US GAAP. Any company that wants to list on US exchanges must comply to US GAAP; and most want to be in the US. Every country in the world has their own rules on how to treat certain transactions. The most widely followed rule outside of North America is the International Accounting Standard, or IAS rules. The accounting profession has been working tirelessly to come up with one universal accounting rule. This is proving to be too difficult since disputes arise as to which standard to adopt on each accounting transaction. The norm now is to attach a note to indicate what the operating results would have been under the different rules. DMX has a note for US GAAP accounting reconciliation. The real losers here are the average investors, like you and I, who are likely not going to understand what all these notes mean. At the end of the day, I believe that investors must look beyond the numbers and assess the integrity of management...in DMX's case, I think we have a winner. PTK