Deficiency Letter

You thought you had good grades, but when you got your report card, your teachers had opinions adverse to yours. They sent your parents a deficiency letter. You know, the one with all those “D”s on it.

Well, when it’s a company’s audit that has similarly gone, uh…awry, then it means that they didn’t count the beans properly when they gave their financial reports to their investors, or whoever the auditors were serving.

Usually, this implies that companies overstated how profitable they really were, or how well they were really doing, so tens of thousands of investors, if the company was public when this happened, paid $27.32 a share...when with the real numbers, the stock probably should have been trading at more like $14.27 a share.

Basically, an auditor is saying that yours are not bread-and-butter misstatements. No “oops.” It’s more of a “dude, there were material, i.e. important, mistakes, and they were pervasive. Like…everywhere. Math, Science, English, History; your failure is no mystery.”

Then there are massive losses to massive numbers of people who hire massive numbers of lawyers who sue you…massively. In the world of finance, an adverse audit opinion is a bit like running over everyone’s favorite dog. Several times.

Only you're the one who is likely dead meat.