"The information we are disclosing today reflects poorly on Freddie Mac's past accounting, control and disclosure practices," O'Malley concedes. "But this release also demonstrates our total commitment to getting this information out, getting the restatement done, and fixing the problems we've identified." Freddie Mac is working with independent auditor PricewaterhouseCoopers LLC to re-evaluate the earnings and to institute accounting corrections. In the ongoing investigation, the company's Board Counsel--a panel of outside advisors--has revealed that an absence of adequate accounting expertise as well as a weakness among internal control and management are to blame for the accounting woes. The aforementioned factors apparently led to accounting staff errors in the utilization of Generally Accepted Accounting Principles.

Now that the causes of the accounting inaccuracies have been unearthed, Freddie Mac is determined to institute changes to ensure that there is no reoccurrence of the problems. Addressing the internal control and financial reporting issues, the company added several accounting policy experts, established an Operating Risk Oversight function, strengthened the review process for critical business transactions, and increased the staff of its mortgage, debt, and derivative portfolio accounting unit. Finally, the Board's Governance Committee and upper-level management will meet weekly for an update on mediations. "We believe the actions taken to date, and those that will be implemented going forward, will fully address the factors that made the restatement necessary," Parseghian says. "I am confident that Freddie Mac will emerge from this process stronger and more disciplined, with a quality of accounting and financial reporting controls to match our risk management capabilities and powerful business fundamentals."