This week, there were several major developments in the State of New York’s ongoing investigations into Donald Trump’s alleged illegal dealings.
In addition to being ordered to testify under oath in a ruling issued today by State Supreme Court Judge Arthur F. Engoron along with two of his children — a decision that his attorneys will no doubt promptly appeal — Donald Trump lost the services of his longtime accounting firm, Mazars USA.
Mazars declared in a letter dated February 9th that it would immediately and with effect withdraw from all present and future engagements with the Trump Organization, instructing them to contact, disclose problems with, formally retract existing financial statements, and provide updated financial statements to all users of their financial statements made between 2011 and 2020.
While the firm had not “as a whole” found material discrepancies between the information the Trump Organization provided and the actual value of Mr. Trump’s assets, given what it called “the totality of circumstances” — including Mazars USA’s own investigation — the letter directed the Trump Organization to notify anyone who received the statements that they should no longer rely on them.
Mazars USA also stated that it has a non-waivable conflict of interest provision that requires them to withdraw from the engagement.
The trigger of the clause was the discovery that it was not given accurate assessments of value by the Trump Organization, per recent disclosures by the New York State Office of the Attorney General, which had previously subpoenaed Mazars USA for their records and testimony, and thus has too great a conflict of interest to continue with the Trump Organization as a client.
The letter to the Trump Organization stating its intentions and recommendations was made public in a filing by the Office of the New York Attorney General.
It disclosed the letter on February 14th, in support of its filing before the New York State Supreme Court to enforce subpoenas for Donald J. Trump, Ivanka Trump, and Donald J. Trump Jr.
“As the most recent filings demonstrate, the evidence continues to mount showing that Donald J. Trump and the Trump Organization used fraudulent and misleading financial statements to obtain economic benefit,” New York State Attorney General Letitia James said in a statement. “There should be no doubt that this is a lawful investigation and that we have legitimate reason to seek testimony from Donald J. Trump, Donald J. Trump Jr., and Ivanka Trump.”
Mazars USA was acting in accordance with AICPA professional standards, specifically the AICPA Clarified Statements on Auditing Standards AU‑C Section 560, Subsequent Events and Subsequently Discovered Facts. This states that when a member firm discovers material subsequent events and facts, it should:
- Discuss the matter with client management.Determine if the financial statements, including disclosures, require revision and, if so, inquire how management intends to address the matter in the financial statements. Involve those charged with governance when appropriate.
- Ensure third-party users are notified. If the financial statements (before necessary revision) have been made available to third parties, client management, not the auditor, should inform the users of the situation and advise them not to rely on the financial statements and related audit report. The auditor should verify that the client has provided adequate notice to third parties. Timely and appropriate notification to third-party users represents a critical step in mitigating the risk of a professional liability claim.
- Audit the new information. The auditor should audit how the client has accounted for the new information and reflected it in the financial statements and related notes.
- Update and reissue the auditor’s report.If the audit opinion differs from the originally issued opinion, an emphasis-of-matter paragraph or other-matter paragraph should be added to the report. The auditor then has two choices related to the date of the reissued audit report:
- Date the report as of a later date. Extend subsequent-event procedures and obtain client management representations through the new report date.
- Dual-date the report. A note to the financial statements should disclose the new financial information and the financial statement impact and include a statement that audit procedures applied subsequent to the original audit report date were limited solely to the revised financial information. Additional management representations should also be obtained in this circumstance.
Clients provide assessments of value, also known as representations, to accountants, which must largely accept the information presented by the client at face value — there is no attestation required, though one can be voluntarily provided. The accountant then provides “compilation services” which translate representations into a financial statement. The accountant does not typically audit representations provided as part of its compilation services.
The compiled financial statement is then the basis for local, state, and federal tax returns, but they by themselves aren’t guaranteed effective in detecting fraud.
The infamous Enron and Worldcom accounting deceptions, which lasted several years, were perpetrated by corporate officers with compliance departments and were publicly traded companies required to provide either an external attestation or an audit by an accounting firm.
Trump did not personally assemble the data for the accountants, but as was written in a cover letter attached to the statements in 2011 and 2012, “Donald J. Trump is responsible for the preparation and fair presentation of the financial statement in accordance with accounting principles generally accepted in the United States of America.”
The fact that material misstatements and omissions were deliberately included in the financial statements by the Trump Organization is a commission of fraud.
It is further evidence that supports the contention that Donald Trump lies to everyone and operates his family business as a criminal enterprise.
This supports existing fraud and conspiracy charges against the Trump Organization and the three Trump family members for inflating the value of their assets to obtain outsized loans, underpaying income and employment taxes by filing fraudulent tax returns, and manipulation of the value of their assets to suit their needs at any given moment.
This exposure goes straight to Donald J. Trump, and this is why he fought so hard to hide his tax and accounting records.