The Trump kids
The Trump kids, seen at the 2016 Republican National Convention in Cleveland, Ohio. Trump's children announced the New York votes that made their father the Republican Presidential candidate. (ABC/ Ida Mae Astute, reproduced under a Creative Commons license)

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 560Sub­se­quent 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.

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