Bloomberg Tax
Feb. 22, 2022, 9:45 AM

Rare Rebuke of Trump Financial Statements Sets Up Showdown

Amanda Iacone
Amanda Iacone

Mazars USA LLP’s disavowal of a decade’s worth of Trump Organization financial statements was not only a rarely seen rebuke of a private company accounting client, but also a key turning point for the New York accounting firm.

Mazars, now separate from its high-profile client, must navigate on its own how much to cooperate with prosecutors and fend off potential civil and criminal charges.

While it’s not unusual for firms to part ways with a client, it’s rare to disavow the client when firing them. It’s rare to determine that ten fiscal years of financial statements were not trustworthy. And it’s rare for an accounting firm to remark on those statements at all if it hadn’t audited or provided assurance on them.

“Accounting firms rarely do this and rarely do it with any publicity,” said James Cox, corporate and securities law professor at Duke Law School. “They don’t want to have the appearance of one, abandoning their clients, or blowing the whistle on their clients, or doing any conduct that’s going to cast aspersions on their clients. And of course, this appears to do all of that.”

The firm said in a letter dated Feb. 9 that the Trump Organization’s financial statements from 2011 to 2020 should “no longer be relied upon,” and it urged its client to inform any users of those past documents. The firm based its warning on findings detailed in recent court documents filed by Letitia James, the New York State attorney general. But it also conducted its own investigation and relied on information “received from internal and external sources.”

The letter effectively ended Mazars’ tax work for Trump, citing the firm’s decision relating to the financial statements and a “non-waivable conflict of interest” with the Trump Organization. The firm had apparently ended its financial reporting work previously.

Mazars compiled “statements of financial condition” for former President Donald Trump from 2004 to 2020. Whitley Penn LLP, a top 40 firm based in Texas, handled the compilation for Trump’s 2021 financial statement, the attorney general’s office said in a 115-page document filed Jan. 18.

James’s office is investigating whether Trump and his real estate empire misstated the value of assets on annual financial statements and tax records, and whether they misled others in order to secure loans and insurance coverage.

Mazars issued a statement saying it could not comment on its work for any current or former clients. But in a statement included in court filings, Trump blamed investigators’ “vicious intimidation tactics” for Mazars’s decision to quit the former president.

“Mazars, who were scared beyond belief, in conversations with us made it clear that they were willing to do or say anything to stop the constant threat which has gone against them for years,” the former president’s statement reads. “They were ‘broken’ and just wanted it all to stop.”

Unaudited, Untested Statements

Private companies often rely on accounting firms to compile their earnings, assets and debt into a financial statement that can be shared with lenders, investors or other business partners. Unlike audits, which are required for public companies, compilations provide no assurance, and they don’t require the accountant to test the accuracy of the figures. Accountants would ask the client to fix any errors or incomplete information they might find.

Mazars’s warning letter and withdrawal as Trump’s accountant could be seen as “tactical maneuvering,” but Philip Rotner, a lawyer who spent his career advising accounting firms, said that’s an over-simplistic explanation.

“They can’t just be silent,” Rotner said. “I don’t think that what they are doing is shocking, if in fact it’s based on their acquisition of newly discovered material inaccuracies. Then I think they are just doing pretty much what they are required to do under the rules that guide the accounting profession.”

Now the firm must convince enforcement authorities that such evidence wasn’t something they previously knew, or should have known, he said, adding: “Mazars is in a delicate position right now.”

“The firm appears to be caught on the multiple horns of a dilemma consisting of duties to its former client, the need to follow the rules, and the desire to protect itself from potential claims,” Michael MacPhail, a securities lawyer with Faegre Drinker Biddle & Reath LLP, said in an email.

Mazars, among the 30 largest U.S. accounting practices and an affiliate of the European-based global network of the same name, may also hope that putting some distance between itself and Trump will help to protect its reputation in the market, said Tom Fox, a compliance consultant.

The international firm declined to comment.

Mazars’s Shifting Interests

The letter signals that Mazars could end up testifying against its former client, even as it still could face civil penalties or possibly criminal charges. Either scenario could put it at odds with its client’s interests, Fox said.

“They have reached the conclusion that association with Trump and the organization is not in their interest,” said Jim Peterson, former in-house attorney for Arthur Andersen. He added that likely that means cooperating with the attorney general instead.

Law enforcement would consider Trump’s accountants as possible witnesses who could help them chart a course through any financial evidence, Peterson said.

Any legal liability stems mainly from the firm’s tax work, which may have relied on the same sources of information as the financial statements, Peterson said.

The Trump Organization and its former CFO face tax fraud charges for what prosecutors described as a more than 15-year tax scheme designed to under-report income and taxable benefits paid to certain employees, effectively lowering the tax bill for both the employees and the company.

“I’d be concerned that the nature and accuracy of the information that I was given in connection with the compilation work would also have found its way into the tax returns and to the extent that I put my name to that, I might very well feel concerned,” Peterson said.

To contact the reporter on this story: Amanda Iacone in Washington at

To contact the editor responsible for this story: Jeff Harrington at