Southern Investigative Reporting Foundation's lead researcher Roddy Boyd published a report in November critiquing Brookfield Asset Management (NYSE:BAM), and its questions remain unanswered for shareholders today.

The investigative report questions the integrity of the company's SEC filings, accounting practices, and related party transactions. Although officials have responded to Boyd in writing after prior inquiries (although never to Boyd's satisfaction), they have not publicly responded to Boyd's November critique.

The big third quarter
Brookfield Asset Management reported its latest net income figure of $813 million for the second quarter of 2013, an alleged 143% increase over the second quarter of 2012. What initially appears to have been an outstanding quarter of growth for the company looks dubious after a consideration of the composition of this figure.

As Boyd explains in his report, Brookfield Asset Management earned 64% ($525 million) of this figure from a litigation settlement. To briefly explain how this happened, a previous incarnation of Brookfield Asset Management called Edper entered into an interest rate swap agreement in 1990 with a subsidiary of AIG (NYSE:AIG) called AIG Financial Products. AIG almost collapsed in 2008, which led to Brookfield Asset Management terminating the agreement, claiming the collapse meant AIG Financial Products had defaulted on its terms. In August 2013, Brookfield Asset Management formally paid $905 million to terminate the contract with AIG Financial Products. (Boyd is uniquely familiar with AIG after publishing a book entitled Fatal Risk detailing the company's collapse during 2008.)

This action raises the question, "How can the company report the liability termination as a profit on its income statement?" The answer lies in accounting. As of the date when Brookfield Asset Management paid its settlement, the contract had accrued to a total liability of $1.4 billion, a hefty increase from its $988 million value as of the end of fiscal 2011.  After adjusting for transaction costs, Brookfield Asset Management reported a $525 million "profit," which was really just the adjusted difference between its purported $1.4 billion liability and its $905 million settlement. Although accounting jargon classified this as a "profit" between accrued liability amount and termination payment, the profit existed only in technicality and contributed no actual cash or future earnings potential to the company. In summary, this paper gain did not and does not represent any real value to Brookfield Asset Management's shareholders.

Should investors care?
Although Brookfield Asset Management's share price did not respond very negatively to Boyd's report, Boyd notes that a private holding company called Partners Limited controls 20% of Brookfield Asset Management's Class A shares. Partners Limited also owns 100% of Brookfield Asset Management's Class B shares. This effectively gives the holding company complete control over Brookfield Asset Management's assets and operations, so the public stock price cannot be easily influenced by third-party press. This structure is not illegal, but Boyd's report argues that the composition of Partners Limited -- about 45 current and former corporate officers of Brookfield Asset Management -- incentivizes creative accounting to boost the company's earnings on SEC filings.

Property valuation
Warranting further attention is the transparency of Brookfield Asset Management's property valuation process. Brookfield Property Partners (NASDAQ:BPY) is a publicly traded holding company for Brookfield Asset Management's commercial real estate. During 2012, Brookfield Property Partners reported $2.7 billion in net income, attributing $1.3 billion of this to fair value changes.

Brookfield Asset Management's 2011 annual report states, "The Company determines fair value using both internal and external valuations." Contradicting this statement is a statement in Brookfield Property Partners' 2012 annual report reading, "From time to time, we obtain valuations of selected operating properties and development properties prepared by qualified external valuation professionals," and "While management considers the results of such valuations they do not form the basis of the company's reported values." In short, Brookfield Asset Management considers the internal valuation of its commercial real estate holdings by Brookfield Property Partners to be external. This statement is not intended to question the validity of the valuations, but instead to point out the aligned incentives of the two companies regarding asset valuation.

Related party transactions
Finally, a 2008 transaction between another one of Brookfield Assets Management's subsidiaries, Brookfield Homes, and a company called MS451, attracted SEC attention regarding the clarity of Brookfield Homes' reporting.

To summarize, Brookfield Homes sold 451 "Morningside Ranch" residential plots to an undisclosed Brookfield Asset Management-affiliated related party. In 2009, the SEC requested that Brookfield Property disclose further details concerning the transaction. Brookfield Homes initially declined, claiming Brookfield Asset Management's ownership stake in the purchasing entity did not warrant further disclosure.

Boyd's report claims that Brookfield Homes sold the plots to a company called MS451, MS451 was owned by Brookfield Asset Management and brothers James and Charles Schmid. The Schmid brothers run Chelsea Investment Corporation, which employs a number of former Brookfield Homes employees who are also listed as MS451 officers. In March 2013, MS451 had allegedly sold the still-undeveloped plots to Brookfield Residential (UNKNOWN:BRP.DL). The transaction, from Brookfield Homes to MS451 to Brookfield Residential, generated $10.5 million for MS451, which Brookfield Asset Management reported in full in its earnings.

This raises the question, "What percentage of Brookfield Asset Management's earnings derives from this sort of related party transaction?" Boyd alleges, "Brookfield Asset Management regularly generates hundreds of millions in profit through complex related-party dealings."

While legally permissible, the structure of Brookfield Asset Management is such that detailed analysis is required to differentiate between paper earnings and true cash earnings from the company's operations. Moreover, even if the company responded to Boyd's allegations today, shareholders would have also been forced to wait over one month for the company to defend the integrity of its SEC filings.

Fool contributor James Shaw has no position in any stocks mentioned. The Motley Fool recommends American International Group. The Motley Fool owns shares of American International Group and has the following options: long January 2016 $30 calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.