Safety-Kleen is a North American company that offers environmental products and services. The company issued a major financial restatement in 2001. In 2000, the company's board of directors initiated an investigation of possible accounting fraud within the company.
The next year, SafetyKleen restated (reduced) previously reported net income by $534 million for the period 1997-99. In the week surrounding the announcement of Safety-Kleen's investigation, the company's stock price dropped over 70% and its auditor, PricewaterhouseCoopers (PwC), withdrew its financial statement audit reports for the previous three years. PwC agreed to settle a shareholder lawsuit for failing to discover the fraud in the amount of $48 million. PwC said the audit firm admitted no wrongdoing but settled to avoid the uncertainty of a trial.
Do you believe that financial restatements and withdrawing an audit report are prima facie indicators that a failed audit has occurred? Explain why or why not.