BDO allegedly chosen by companies for its “less rigorous” Audits

• In September 2025, US auto parts giant First Brands collapsed into bankruptcy.
• For years, BDO USA signed off on clean audit opinions.
• The most damning part? They reportedly hired BDO USA not because they were the best…But because they were perceived as “less rigorous.”
• What does this mean for India?

What went wrong inside First Brands?

Federal prosecutors have charged the founders, Patrick James and Edward, with fraud.

The allegations are serious:

• Invoices were inflated. The same assets were reused repeatedly to raise more debt.
• Liabilities were hidden off the balance sheet to make the company look healthier than it was.
• Cash and assets were quietly pulled out during acquisitions.
• Real estate and IP were shifted out of the company.
• And the most jaw-dropping allegation of all? They may have been running two sets of books. One real. One “for show.”

A court-appointed examiner concluded the company was essentially being kept alive on fake financing.

What did Auditor BDO miss?

BDO USA audited First Brands between 2020 and 2024.

Their 2024 audit reportedly showed $5.23 billion in corporate debt.

When restructuring advisers stepped in and rebuilt the numbers independently, the figure jumped to $11.63 billion.

More than double.

And what didn’t show up clearly in the audit picture?

• Billions in off-balance-sheet debt
• Asset-backed and inventory-backed credit lines
• Certain supply-chain financing structures

On paper, everything looked controlled.

In reality, the leverage picture was very different.

Also read: BDO accused of stealing…lost high-profile clients like Jay Z 

But here’s where it gets uncomfortable

This is where the story stopped being just another audit failure.

According to the Financial Times, a former First Brands employee told the court that BDO USA was not just an auditor choice….It was a strategic selection.

The company deliberately selected BDO because it was seen internally as the easiest firm to work around.

The exact words from the court examiner’s report? BDO was characterised as having “the most unsophisticated audit process”, meaning “we can do what we want with these guys”.

This was allegedly a company shopping for an auditor it could manage.

BDO’s response?

BDO claims they were “deceived” and followed professional standards.

But the market isn’t buying it.

Creditors like Black Diamond are now suing for negligence, arguing that a real auditor doesn’t just look at what they’re shown, they look for what’s being hidden.

So who is India’s “weakest” auditor?

That’s the wrong question…but it’s the one people keep asking.

In India, the audit ecosystem includes:

• Big 4 firms
• Large global networks such as BDO India
• Mid-tier and local audit firms

Over time, the National Financial Reporting Authority (NFRA) has issued 94 disciplinary orders against 19 audit firms and 84 Chartered Accountants, covering penalties, debarments, and audit quality reviews.

The lapses are not confined to one category.

Big 4 affiliates, mid-tier networks, and smaller firms have all appeared in regulatory findings at different points.

Also read: KPMG under scrutiny: Why the Auditor is being criticized in relation to Three Failed Banks in the US.

Choosing an auditor

So, what do CFOs, CEOs, and boards actually look for when appointing an audit firm?

• Long-standing relationships
• Industry expertise
• Tech capabilities
• Or is it the secret 4th answer….because it is “not as rigorous” and won’t be a nuisance to work with.

Wrapping up

The First Brands case didn’t just expose a fraud. It exposed how auditors get chosen and what some companies are actually looking for when they make that call.

It also proves that a big name doesn’t guarantee a big spine.

In India, the audit rotation season is here. Somewhere right now, a CFO is sitting across from an audit partner, deciding who gets the mandate.

So are companies choosing auditors who challenge the company…or auditors who accommodate them?

FAQs

Q: Who appoints external auditors?

A: External auditors are typically appointed by shareholders at the Annual General Meeting (AGM), based on recommendations from the board or audit committee. In the early stage, the board may appoint the first auditor.

Q: Has BDO been accused of audit lapses before?

A: Yes. BDO has faced scrutiny in multiple cases.

1. In the AmTrust Financial Services Inc. case, BDO was accused of issuing “false certifications” and “botched audits” for insurer AmTrust.
2. In 2015, the SEC charged BDO USA and five partners for issuing false and misleading audit opinions wrt General Employment Enterprises Inc.