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Univ. of Toledo College of Law

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Tuesday, February 26, 2008

Two Deloitte Accountants Settle Charges Involving Delphi Audits

The SEC settled two administrative proceedings and found that Nicholas Difazio and Duane Higgins, Deloitte & Touche LLP (D&T) engagement partners on the 2000 and 2001 audits of the financial statements of Delphi Corporation, engaged in improper professional conduct on those audits.  In its first Order, the Commission found that Difazio, the lead engagement partner, engaged in improper professional conduct in auditing: (1) Delphi's improper accrual of an estimated warranty expense by its former parent as a direct charge to equity in the second quarter of 2000, rather than as an expense of the period in accordance with GAAP; (2) Delphi's improper classification of most of a $237 million payment settling the former parent's warranty claims to pension and other post-employment benefit "true-up," causing the amount to be accounted for as prepaid pension cost in the third quarter of 2000 in contravention of GAAP; and (3) Delphi's failure to account for the fourth quarter 2000 sale of certain batteries and generator cores, coincident with a side agreement to repurchase that inventory, as a financing transaction, as required by GAAP.

In a separate Order, the Commission found that Higgins, the audit engagement partner, engaged in improper professional conduct with respect to issue (3) above, as well as in connection with Delphi's failure to account for the simultaneous execution of agreements to sell and repurchase precious metals in the fourth quarter of 2000 as a financing transaction, as required by GAAP.

In each Order, the Commission found that Difazio and Higgins, among other things, failed to obtain sufficient competent evidential matter to afford a reasonable basis for the opinion rendered by D&T, to exercise due professional care in the planning and performance of the Delphi audit, and in performing the audit to identify material departures from GAAP in the financial statements.

The Commission's Orders denied Difazio the privilege of appearing or practicing before the Commission, pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice, with a right to reapply after three years, and denied Higgins the privilege of appearing or practicing before the Commission, pursuant to Rule 102(e)(1)(ii), with a right to reapply after two years.  Both Difazio and Higgins consented, respectively, to the issuance of the Orders without admitting or denying the findings of the Orders.

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