Friday, April 6, 2007

Concerns over the resignation of Fremont’s auditor

Grant Thornton LLP, an accountancy firm hired by Fremont General, resigned earlier this week, sparking concerns about the lender’s bookkeeping practices. Fremont shares dropped 10% to close at $5.78 on Wednesday.

Grant Thornton said Fremont didn’t always provide the information needed for the audit. The lender, on the contrary, claims it always provided needed information and wants the lender to complete the audit, but Grant Thornton is looking to exit the subprime mortgage industry and expand its audit. Grant Thornton recently resigned from auditing another lender, Accredited Home Lenders, but in that case, there were no disagreements about the reason.

It is very unusual for an auditor to publicly disagree with a client about the reasons behind its resignation, and it could well mean that there was something wrong with Fremont’s accounting. Perhaps Fremont, like other lenders, has used some kind of “creative” accounting?

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