The Securities and Exchange Commission has censured the accounting firm Kenneth Leventhal & Co. and required the company to replace its Washington office managing partner because of professional failures during the early 1970s in auditing financial statements of Emersons Ltd.
Emersons Ltd., a Rockville restaurant chain, collapsed in corporate scandal in 1976 after the SEC sued the chain, alleging civil fraud and kickbacks and other violations by top management.
The SEC, in an order tempered by kind words about Leventhal & Co., said yesterday that the company and Joseph F. King, who was in charge of the company's Washington office, examined and reported on Emerson's financial statements. Those statements, which proved to be materially false and misleading because of management frauds, were not examined in accordance with generally accepted auditing standards, the SEC said.
Leventhal and King consented to the order without admitting or denying the allegations it contained.
The SEC noted in its order that Leventhal & Co. had voluntarily engaged another accounting firm to review its work. That review indicated that the company's "system of quality control for accounting and auditing practice was appropriately comprehensive and suitably designed."
The commission also said that a number of circumstances "mitigate the gravity of the shortcomings" it had found, including the fact that in at least one of the areas "the auditors were the victims of a deliberate management scheme to defraud, of which the evidence indicates the auditors were unaware."
King will remain in the Washington office working with consulting services.