In April 2005 the SEC announced that Deloitte & Touche had agreed to pay $50 million to settle charges stemming from its audit of Adelphia Communications Corporation's fiscal year 2000 financial statements.
After performing appropriate research, address the following questions.
a. Once the risks of material misstatement are identified, the auditor is to determine the audit approach that best addresses those risks. In what ways did Deloitte & Touche fail to do this?
b. What was the nature of the fraud at Adelphi as it related to debt obligations and its stockholders' equity accounts?
c. In addition to paying the $50 million settlement, what other actions did Deloitte & Touche agree to? Do you believe these actions will lead to improved audit quality at Deloitte & Touche?