First Columbia Financial Corp. v. Price Waterhouse

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A holding company alleged that the negligence of the auditor of its savings and loan subsidiary resulted in an accounting misstatement and claimed damages related to activities it would not have pursued had it known the true financial condition of the subsidiary.

A holding company alleged that the negligence of the auditor of its savings and loan subsidiary resulted in an accounting misstatement and claimed damages related to activities it would not have pursued had it known the true financial condition of the subsidiary.

Our work with Professor Barth showed that the parent would have had to provide a capital infusion.

The audit firm retained Cornerstone Research, Professor John McConnell of Purdue University and Professor James Barth of Auburn University to evaluate the plaintiff’s claims. Our research with Professor McConnell showed that the savings and loan’s use of financial derivatives for purposes of risk management would have been generally suitable even if the thrift’s financial results had been presented differently. Our work with Professor Barth showed that the parent would have had to provide a capital infusion, even under a restatement of the firm’s financial results, given management’s growth plans for the savings and loan and the changing economic and regulatory environments affecting thrifts.

Case Expert

John J. McConnell

Burton D. Morgan Distinguished Chair of Private Enterprise (Finance),
Krannert School of Management,
Purdue University