{ "docId": "019dd923-622c-750b-8b9d-39f11e449ba8", "docSlug": "2440e3a9300a", "documentTitle": "Allied Capital (ALD)", "authorId": "04_Greenlight_Capital", "authorName": "David Einhorn", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "activist_investor", "sourceTypeLabel": "Activist investor", "presentationDate": "2002-06-17 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 25, "pageCount": 27, "prevPage": 24, "nextPage": 26, "slideType": "preempt_rebuttal", "function": "preempt_rebuttal", "density": "overcrowded", "nDataPoints": 0, "notes": "The slide uses a narrative structure to expose a potential contradiction between the auditor's previous assurances and the company's explanation for their absence in 2001.", "elementsJson": [ "paragraph", "quote_block" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b9d-39f11e449ba8/25", "deckHref": "/decks/019dd923-622c-750b-8b9d-39f11e449ba8", "deckJsonHref": "/decks/019dd923-622c-750b-8b9d-39f11e449ba8.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b9d-39f11e449ba8#slide-25", "components": [ { "bbox": null, "kind": "callout", "text": "Allied's auditors, Arthur Andersen LLP, either would not, could not, or did not feel they were required to provide Allied's Board of Directors and Shareholders in 2001 the following assurance they had provided in previous years.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-ee3c-76df-9654-7212c5a51e4d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.71, "x": 0.145, "y": 0.18 }, "kind": "paragraph", "text": "At the conference, Mr. Einhorn pointed out that Allied's auditors, Arthur Andersen LLP, either would not, could not, or did not feel they were required to provide Allied's Board of Directors and Shareholders in 2001 the following assurance they had provided in previous years:", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "03fe6995-61f0-4658-9484-745ca42c20a1", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.62, "x": 0.23, "y": 0.64 }, "kind": "paragraph", "text": "Prior to 2001, AICPA guidelines instructed auditors to include an explanatory paragraph when they found a company's valuation procedures reasonable and acceptable. Such paragraphs appear in ALD's pre-2001 auditor reports. This guideline was changed in May 2001. Auditors are now instructed to comment only when they find a company's valuation procedures unacceptable – hence the exclusion of the 'reasonableness' sentence from ALD's most recent report...", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "17d095d8-c9d7-42b3-8c0d-f713f2d8b1b4", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.71, "x": 0.145, "y": 0.49 }, "kind": "paragraph", "text": "On May 22, Merrill Lynch, which was the lead manager of Allied's last three secondary offerings according to Bloomberg, issued a report that attempted to substantiate Ms. Sweeney's claim.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "caee1090-390e-4308-96ae-6ffdc09ded11", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.71, "x": 0.145, "y": 0.365 }, "kind": "paragraph", "text": "In response, Ms. Sweeney, Allied's COO, on a May 16th conference call addressing recent market activity said, “the AICPA in 2001 issued a new audit guide for investment companies and Allied Capital Corporation is a sub-set of an investment company, being a business development company. The audit guide simply changed the language of the standard auditor's opinion and, as a result, our audit opinion language changed.”", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ec6a184c-f30d-46cd-abc5-fca100bbadfe", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.62, "x": 0.23, "y": 0.265 }, "kind": "quote", "text": "We have reviewed the procedures used by the Board of Directors in arriving at its estimate of value of such investments and have inspected underlying documentation, and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate.", "attrs": null, "subkind": "pull-quote", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5a05f8c5-b9cf-4852-9f71-12c42d91fe36", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.62, "x": 0.23, "y": 0.79 }, "kind": "quote", "text": "[B]y excluding a comment on the reasonableness of ALD's investment valuation procedures from its 2001 report, the company's auditor was following AICPA guidelines to the letter of the word, not tacitly expressing concern.", "attrs": null, "subkind": "pull-quote", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a6cd2bb2-f14e-4382-b943-1a7097d62683", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.62, "x": 0.23, "y": 0.555 }, "kind": "quote", "text": "[W]e have written that we believe these allegations are unfounded and uninformed and have attempted to produce as much factual rebuttal as possible. As outlined below, we believe we can now factually dismiss the allegation of a less thorough audit...", "attrs": null, "subkind": "pull-quote", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b620f850-8349-43f5-8945-f30577bccbe7", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "\"We have reviewed the procedures used by the Board of Directors in arriving at its estimate of value of such investments and have inspected underlying documentation, and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate.\" — Arthur Andersen LLP (previous audit language). \"[W]e have written that we believe these allegations are unfounded and uninformed and have attempted to produce as much factual rebuttal as possible.\" — Merrill Lynch report.", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd952-ee3c-76df-9654-773d7b7b8eb1", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.45, "x": 0.145, "y": 0.145 }, "kind": "title", "text": "The Problem with the Arthur Andersen Audit Letter", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "73d3b60a-57ff-420e-a04a-6e9a3c75f5ad", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "preempt_rebuttal", "slug": null, "matchId": "167e42d7-b867-450b-a744-8dbd6e1c97e4", "evidence": "The slide presents a critique followed by the company's defense and a third-party validation to neutralize the initial claim.", "confidence": 0.9 } ], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }