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Bidz.com (BIDZ) should seriously consider replacing Stonefield Josephson Inc. as its auditors. According to a March 2007 Public Company Accounting Oversight Board (PCAOB) Inspection Report, Stonefield Josephson, Inc. was cited for significant deficiencies in five of thirteen audits reviewed or about 38.5% of audits sampled. See below:

The scope of the inspection procedures performed included reviews of aspects of the performance of 13 of the Firm's audits of the financial statements of issuers. Those audits and aspects were selected according to the Board's criteria, and the Firm was not allowed an opportunity to limit or influence the selection process. The inspection team identified matters that it considered to be audit deficiencies.

The deficiencies identified in five of the audits reviewed included deficiencies of such significance that it appeared to the inspection team that the Firm did not obtain sufficient competent evidential matter to support its opinion on the issuer's financial statements.

Note: Bold print and italics added by me. Full report here.

Unfortunately, the PCAOB report does not identify which company audits failed inspection, even though many people have questioned such a policy. However, failing to "obtain sufficient competent evidential matter to support its opinion," in five of thirteen audits inspected, raises a red flag about the overall quality of Stonefield Josephson's audits.

This blog has written extensively about Bidz.com's inventory accounting disclosures and possible violations of Generally Accepted Accounting Principles in the company's accounting for inventories (details here, here, and here). The SEC started investigating such disclosures after I alerted them.

Bidz.com is besieged by a flurry of lawsuits, seeking class action status, alleging securities fraud by the company and David Zinberg (CEO and President), based on issues raised in reports by short seller Citron Research. In addition, the company is being sued for alleged shill bidding on its web site.

Disclosure: I am a convicted felon and a former CPA. I pleaded guilty to three felonies for my role in the Crazy Eddie fraud as the former criminal CFO of the company.

I do not own any Bidz.com securities long or short.

Source: Now, Questions About BIDZ.Com's Auditors