Friday, July 8, 2005 | 9:12 a.m.
Deloitte & Touche LLP, the largest U.S. accounting firm, is being investigated by federal regulators over a 2003 audit of Navistar International Corp., according to a document authorizing the probe.
The Public Company Accounting Oversight Board, in a two- page order issued in May, said Deloitte's work at Navistar may have failed to comply with at least five auditing standards. The formal investigation is the first to emerge targeting one of the so-called Big Four accounting firms -- Deloitte, Ernst & Young LLP, PricewaterhouseCoopers LLP and KPMG LLP -- since the PCAOB was created by the Sarbanes-Oxley Act of 2002.
"It puts a cloud over the auditing firm's reputation and credibility," Paul R. Brown, an accounting professor at New York University's Stern School of Business, said when told of the investigation.
New York-based Deloitte paid $50 million in April to settle U.S. Securities and Exchange Commission allegations that its audits should have detected fraud at cable-television company Adelphia Communications Corp. It remains the largest penalty the SEC has levied against an accounting firm.
The SEC, which oversees the PCAOB, inadvertently disclosed the board's investigation of the Navistar audit.
While the PCAOB document doesn't explain what Deloitte may have done wrong, Navistar said in January that its finance unit erred in accounting for customer truck loans that were packaged into securities for sale to investors.
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