Evening star., 1939-02-10
Audit Firm Accused
Of False Report
On Bankrupt Railroad
Price, Woterhouse & Co.
Named by Senate Unit
For 1884 Statement
BY the Associated Press.

by tEe ASSOCldttu f.ItSS
Railroad finance investigators re-
ported to the Senate today that
Price, Waterhouse g. Co., New York
accounting firm, certified to stock
holders of the bankrupt Missouri
Pacific Railroad in 1884 financial
report that departed from even
minimum standards of correctness,
accuracy and truth
The report was one of a series
by a special subcommittee of the
Senate Interstate Commerce Com
mite, headed by Senator Wheeler,
Democrat, of Montana.
The accountants, the committee
said, certified a 1894 Missouri Pa
cific trustees report despite knowl-
edge that $4,000 900 listed as a spe-
cial deposit of the railroad company
was non-eXistent At the same time.
the committee said, a report was
made to privileged few showing
the deposit had been stamped.
Wheeler Cites Need of Supervision.
Chairman Wheeler said in state
ment accompanying the report that
the incident showed a need for
general supervision of public &C
counting practices, as well as need
for safeguard in the railroad field.
Senator Wheeler said the COM
mittee would like to see the per-
sonnel of the Bureau of Accounts
in the Interstate Commerce Com
mission increased and would like the
I. c. c. to have the same access to
the books of railroad subsidiaries
and holding companies. banks, bro
kerage and investment banking
firms and accounting firms that it
now has to the books of the rail-
roads themselves
Even where gross irregularities
are discovered by certified public ac-
counts" Senator Wheeler said, "the
accounts may be certified to the
public without revelation of the
gross irregularities discovered
The committee reported that
Price, Waterhouse g. Co. discovered
that the S3,2OO,O0O was not on de-
posit with the Guaranty Trust Co.
of New York, although listed in the
company'S books as a special de-
post. The accountants had been
employed by the bankruptcy trustee
to audit the company's books and ex-
anime and certify the roads annual
report to stockholders.
Two Stories Charged.
Despite the discovery, the COM
mittee added. the stockholders were
not informed of the situation.
"As of the very date that stock
holders were certified this grossly
inaccurate information" the COM
mittee said. "the trustees and few
privileged insiders were told anoth-
er story 1t was story composed
of an ambiguous half truth and a
false entry. 1t did not suppress a
material fact nor did it mince words
in stating the circumstance uncov-
cred by the auditors investigation
of the Missouri-Pacific books.
1T is difficult to see how such a
remarkable contradiction was per-
mitted to occur in two documents
bearing the certifcation of the
same auditing firm under the same
date
"The fact that the false report
was the one that went to thou
sands of investors, while the true
report was cloistered in lower
court in st. Louis and distributed
only to a privileged few (after a
mysterious delay during which at
tempts were made to change the
document in other important re-
spects makes the circumstances
especially questionable" the COM
mittee said.
Says it "Shakes Public's Faith"
The committee said the informa-
ton certified by the accountants
became the basis for erroneous
data in a number of financial and
reference manuals.
This failure on the part of an in
dependent auditing firm to reveal ,tc
investors a vital discrepancy BE-
tween corporations books and the
true state of affairs, actually dis
covered by the auditors through
their investigation, tends to shake
the public's faith in outside audits'
, The committee said Price, Water
house & Co. had been often en-
ployed by leading banking firms in
New York and had done consider
able work in connection with secur-
| ity issues and had acted as con-
sultants to the New York Stock Ex-
change.