1. Audit Firms Sure to Face New Litigation, Experts Say - Compliance Week
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Compliance Week > Blogs > Accounting & Auditing > Audit Firms Sure to Face New Litigation, Experts Say
Audit Firms Sure to Face New Litigation, Experts Say
Tammy Whitehouse July 22, 2009
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A udit firms have so far managed to fend off any firm-busting
liability claims, but research firm Audit Analytics is raising
MORE ACCOUNTING &
AUDITING
questions about whether that may change in the near future.
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on XBRL Filings
Mark Cheffers, CEO of Audit Analytics, says audit firms likely will face
PCAOB Maps Out Ideas for
some massive liability claims as the plaintiffs’ lawyers determine where Overhauling Auditor's Report
to target blame for the economic tumble of the past several months. He
FASB, IASB Part Ways on
presented data raising the question at a recent litigation conference Netting Derivatives
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hosted by the American Law Institute and the American Bar Association.
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Cheffers said Audit Analytics tallied up cases already making their way FASB, IASB Part Ways on Netting
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into the litigation pipelines, and determined eight major audit firms have Derivatives
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been named in nearly a dozen securities class action suits related to the PCAOB Maps Out Ideas for Overhauling
Auditor's Report
Bernie Madoff scandal alone. Six audit firms have been named in cases
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related to the credit crisis, and those cases likely are just the beginning,
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Cheffers said. Auditor Liability
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Audit Analytics sorted out the top 50 accounting malpractice settlements
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since 1999 and said Ernst & Young has paid the largest amount in Rotation Idea
settlements related to those cases at $1.92 billion. KPMG follows with settlements totaling $1.42 billion, followed SEC at the 'Inflection Point' -- Commissioner
by PricewaterhouseCoopers at $1.27 billion and Deloitte & Touche at $1.25 billion, the firm said. Aguilar Looks at the Challenges Ahead
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“The exposures from existing claims or potential claims is still a breathtaking number,” said Cheffers, but it’s British Government Criticized for Lack of
difficult to speculate what may ultimately reach litigation. “The plaintiff’s bar generally understands there’s really Audit Reform
only so much you can get from one of these firms before they will fight you to the end of time.”
Audit firms have called for protections from liability, but investor advocates have railed against such measures.
Big 4 firms are largely unable to obtain insurance against audit-related liability claims because there are so few
firms doing so much of the work related to public companies, and the risk of claims is too great. Big 4 firms worry
that a major settlement could bankrupt a firm while investors say the threat of liability is an important stick in
assuring rigorous audits.
A U.S. Treasury panel studying the audit profession made a number of recommendations for how to assure the
http://www.complianceweek.com/audit-firms-sure-to-face-new-litigation-experts-say/article/189414/[25-06-2011 1:01:29]

2. Audit Firms Sure to Face New Litigation, Experts Say - Compliance Week
viability of the audit profession, but failed to reach consensus on how to address the liability question. Siefert said
the call from audit firms for protection from liability quieted considerably through the financial crisis as
Washington became focused on bigger problems.
Roger Siefert, a managing director for consulting firm LECG’s New York office and former general counsel for
CPE Credits On Demand!
Deloitte, said there’s been a lull in litigation through the financial crisis, but tension is building. “The plaintiff
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lawyers are looking for culpable parties and trying to determine if there are deep enough pockets to justify Continuing Professional Education (CPE)
litigation,” he said. “It’s inevitable that accounting firms will be some of the parties still standing, and fingers will credits by watching Compliance Week
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http://www.complianceweek.com/audit-firms-sure-to-face-new-litigation-experts-say/article/189414/[25-06-2011 1:01:29]