In June 2009, Deloitte agreed to pay almost $1 million to settle a class action lawsuit related to its audits of Beazer, a homebuilding company. The lawsuit claims that Deloitte should have noticed the homebuilder was issuing inaccurate financial statements as the housing market began to decline.
A spokesperson for Deloitte indicated that the firm denies all liability and settled to avoid the expense and uncertainty of continued litigation.
a. Using appropriate sources research this case and identify fraud risk red flags that the auditor should have been aware of in these audits. One source that can get you started on your Internet search is: www.cfo.com/article.cfm/13612963?f=search.
b. If these fraud risk red flags were indeed present during Deloitte's audit, what were the auditors' responsibilities in conducting the audit?
c. Comment on Deloitte's willingness to settle the case, while at the same time denying liability.