>>>the {E&Y}dismissal is long overdue.
>>>Their responsibility is to raise issues in a timely manner
>>> they really failed on the "barter" issue a year ago
I'm not an accountant, but I've hired a few for audits. Once a big 8 firm (10 years ago) for a private placement and once a small one for a pre IPO stub audit.
From those experiences I would say, IMHO, that E&Y absolutely had and has a fiduciary responsibility throughout their relationship with Informix as auditors of record to identify and strongly recommend corrective action for any and all irregular internal accounting practices they observe during the course
of any audit.
I would expect most accounting firms would report irregularities in accounting to the CEO and the board, qualify any opinions they had about the company and demand timely reconciliation of the problems or the consequences would be their resignation. In general, these firms are extremely conservative.
In reality, however, I have found smaller accounting firms to do much better due diligence and to be much more responsive because they are building reputations. On the other hand, the big 8 firm I worked with dragged their feet for 6 months on whether it was their responsibility to give a forward looking opinion on financials for a private placement. Ultimately, they decided not to. The result was that their "non-action" and "delayed opinions" put us out of the window for a PPM because by the time we could fix things the Oct 87 crash was upon us. We had product, investors, national distribution, sales, good legal (Microsoft's attorney) and we missed the window because of the accountants' (arrogant) "non-action." What I'm trying to relate, is that IMHO, a company's accountants have a legal responsibility to be pro-active. In retrospect, I should have sued the pants off the firm I had hired. (It was not E&Y!)
Looking back on the E&Y relationship with Informix, something is wrong here. But we as investors have suspected this from the time of the first restatement. If E&Y had not been involved with the accounting problems during Phil's tenure, they would have, should have, resigned when the problems were not corrected.
When Bob F. came on board, he gave E&Y the benefit of the doubt (as to whether they had correctly reported to Phil) and kept them on through the restatement. It may have been done with some prejudice, but it was smart at them time. First, there were too many other issues which had to be dealt with (Phil, the need for restatement, law suits, turning around the P&L, reorganizing to cut costs, building a new internal team in every division, convincing customers to stay, finding new customers, stabalizing investor confidence, etc.), Bob's plate was full and to have let go of E & Y at the time, even though they were suspect, may have been just too much bad news for the company to pull out of. Plus, they knew the existing accounting policies and could best work through a major restatement. If done well well it would help Informix, and clear up any doubts about E&Y.
Now that most of the bad news is past, (if you go back a few weeks) and the dust has settled a bit, Bob F. has had a chance to observe E&Y's standard business practices. So when he realizes that right after reporting a great Q2, he must restate again....he's got to be furious. If Bob even dreamed there would be a problem so soon after Q2 reports, he would have fixed it first and reported less. I really don't think this was Bob's doing, I think this was an internal bomb shell dropped on him after Q2. Who's responsible? E&Y. Heads roll. And rightly so. They absolutely had a chance to fix things and to report how to fix them. And they didn't.
Meanwhile, I seem to recall that a second firm had been brought in to assist in the first restatement. And to get up to speed on the issues. Now that they've had time to do so, Bob has made one more tough, but very smart move. To finish the clean-up from the mess he inherited.
What more could we ask for. We now have a completely new and fresh team at IFMX. Long term, I think the future is brighter than ever. Short term, we have some rough months ahead of us. But that seems more due to stock deals for preferred shareholders than to anything the company is doing.
@jim |
