Auditor’s Duty to Ensure Clients are Using Accounting Practices in Compliance with Generally Accepted Accounting Principles: A Case Study of Infinity Business Group, Inc.

Infinity Business Group, Inc. (IBG), a company specializing in the collection of bad checks, was incorporated 2003. IBG recorded its fees as Accounts Receivable even before Not-Sufficient-Funds checks were collected, method not compliance with Generally Accepted Accounting Principles; accordingly, IBG’s auditor should have issued unqualified opinions on financial statements during 2003-2008. A $23 million write-off 2009 had devastating effect and it declared bankruptcy 2010. In 2019, Bankruptcy Court ruled: (a) auditor’s violated U.S. Securities Exchange Act, forced to plead guilty one felony count securities fraud; (b) CFO dishonest when he responded an inquiry from lender about Receivable; (c) Morgan Keegan & Company, (MK), brokerage investment banking firm contractually affiliated IBG, encouraged discontinue using improper accounting method; (d) President Cordell made misrepresentation MK 2007 stated that all questionable been written off; (e) 2008, became aware might change (f) never managers breach fiduciary duties IBG; (g) did owe duties, but if did, there is no evidence because discontinuance practice; (h) some directors innocent, they participate daily operations company, control company; (i) notwithstanding fact commit fraud, “innocent” failed discharge their by advocating for continued use method. On appeal 2021, District affirmed Court, holding that: make any legal errors; Trustee adequately prove damages caused MK; Trustee’s claims barred Doctrine Pari Delicto.