How Accounting Firms Use Disclaimers To Avoid Verifying Figures in Financial Statements

Former President Donald Trump’s accounting firm, Mazars USA LLP now reveals that the last 10 years of the financial statements it created for former President Trump are unreliable, according to published news reports. These same financial statements were used to show banks, investment companies and real estate firms how wealthy Trump appeared — wealthy enough to cover loans to purchase certain expensive properties, for example. In other words, the financial statements created the illusion of Trump’s magnitude of wealth.
Why isn’t this fraud on Mazars’ part you may ask?
Turns outs an accounting firm can find a way out of inaccuracies in the numbers because of one word in the fine print contained in the financial statement: DISCLAIMER. It is an acknowledgement that the firm did not audit or authenticate the numbers in the documents used to arrive at the Trump’s net worth.
It turns out that accounting firms are not legally required to check the figures one provides to them as long as the firm uses the words “compile.”  Compile means the firm gathered the figures but did not check the figures to make sure they are accurate. As long as the firm does not use the word “audit” the firm can find a way out of vouching for the accuracy of a financial statement.
When I taught Financial Fraud in Divorce at John Jay College of Criminal Justice I passed around some accounting firm disclaimers to show how accounting firms legally get around having to be held accountable to avoid accusations of fraud. For example, in one real divorce case I handled, the husband’s accounting firm set his net worth statement at $20 million — the purpose was to obtain a loan. But on another net worth statement for the husband’s divorce case, he stated his net worth was under $5 million. The discrepancy between the husband’s two financial statements were shown to the Court, but the judge did not care. The husband was not held accountable. And when I looked at the fine print in the accounting firm’s financial statement for the husband, sure enough, I found that word “Disclaimer. “ All the firm did was gather and organize the numbers for the bank — “compile” the figures for the husband. The firm did not look behind the husband’s numbers to see whether the numbers were accurate. Was the husband worth $20 million as he contended to the bank? Or was he worth under $5 million, as he contended in his sworn-to papers to the divorce court?
That’s another story. . . .
It’s interesting to think that some of Mazars’ unreliable financial statements for Trump were made during the time he was President — through 2020 — according to published reports. Stay tuned for more developments. . .