|  | | 2006 News and Press Releases | | |
HEADLINE NEWS:
Auditor Infantilism: Where Are The Limits?
Elizabeth MacDonald
Forbes.com. November 13, 2006
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EXCERPT: Accounting firms are fighting hard to be even less accountable for botched audits. But the U.S. Securities and Exchange Commission, a group of federal banking agencies and a big association representing pension funds with more than $3 trillion in assets are saying, "Not so fast." At issue is a proposed rule put forth by the American Institute of Certified Public Accountants, the same accountant trade group criticized for exercising weak oversight of public company auditors who failed to catch the wave of corporate accounting scandals at such places like Enron and WorldCom. The AICPA, which can pass rules governing auditors, wants to rubberstamp a new plan that the big accounting firms have signed on to. The plan will let auditors negotiate limits to their liability exposure with clients. Specifically, it would let auditors contractually force corporate audit clients to give auditors immunity from liability for their own negligent acts during an audit. The fear is that if auditors get to operate without these guardrails, then they will be more inclined to not only be less thorough in stopping corporate fraud, but to swallow wholesale any fraudulent statement a corrupt corporate executive gives them about their financial statements. In turn, investors would be at risk of even more accounting frauds. The Council of Institutional Investors, an association of more than 130 public, corporate and union pension funds with combined assets of over $3 trillion, last week sent the AICPA a letter objecting to its plan, saying any move to lessen the consequences for auditors who botch audits potentially places "companies, share owners and capital markets at risk" and that "companies should not agree to limit the liability of outside auditors." Already, the guardrails have come down in certain corporate audits. KPMG got audit clients Accenture and AARP Funds to give up any right to punitive damages and agree that any disputes will be resolved by closed-door tribunals. Ernst & Young won the same terms from Silicon Graphics and Sun Microsystems.
The SEC has already said indemnifying auditors "from any liability and costs resulting from knowing misrepresentations by management" would impair the auditors' independence. Federal banking agencies also object to the change, saying it could weaken the auditors' "objectivity, impartiality and performance." |
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