ACAP’s discussion during its open meetings on the topic of auditor liability was commented on by Jim Peterson in his blog, Re: Balance on Friday. Peterson, who formerly served as a senior in-house lawyer with a major accounting firm, and whose columns have appeared in the International Herald Tribune, Journal of Accountancy, and elsewhere, wrote: “Did anyone really think that the endless chatter about saving the system of privately-provided audits for large global companies would come to anything? If so, that fantasy was dispelled on June 3, in the closing minutes of the latest meeting of the U.S. Treasury’s Advisory Committee on the Auditing Profession – webcast here. In his summation, Co-Chairman Don Nicholaisen explicitly stated that, with an insubstantial exception, the Committee’s recommendations ‘do not address catastrophic risk’ of the loss of the Big Four.” See also our earlier coverage of the June 3 ACAP meeting (our June 9 blog post), and related analysis by Francine McKenna, author of the Re: The Auditors blog (and her earlier post here).
Attorney-Client Privilege Bill Gains Support
Lynnley Browning reported in yesterday’s New York Times, in her article, “Bill to Protect Companies in Inquiries Adds Support,” that, “Nearly three dozen former federal prosecutors have thrown their weight behind a Congressional bill intended to safeguard confidential communications between lawyers and their clients, a legal bedrock that has come under attack amid corporate fraud scandals.”
“The closely watched bill,” Browning continues, “would make it illegal for prosecutors and other federal enforcement officials, including those at the Securities and Exchange Commission, to demand that a company under investigation disclose confidential legal communications or risk being indicted — a corporate death knell.”
The bill in question is the Attorney-Client Privilege Protection Act of 2007, sponsored in the Senate by Senate Judiciary Chair Sen. Arlen Specter, (see related info here), with a similar bill sponsored in the House Committee on the Judiciary, chaired by Congressman John Conyers, Jr.
Dan Slater provided a link to the letter in his post in the Wall Street Journal Law Blogyesterday, along with a link to related info on the proposed legislation on the website of the National Association of Criminal Defense Lawyers.
See also info on the Association of Corporate Counsel website; ACC’s SVP and Corporate Counsel Susan Hackett was interviewed in Browning’s NYT article. We had the ‘privilege’ of interviewing Hackett and others in this article in Financial Executive Magazine Sept. 2006 (Note: the article predates issuance of DOJ’s “McNulty Memo” which superceded the Thompson Memo; however the proponents of the current bill before the House and Senate argue the McNulty Memo did not go far enough in addressing concerns about the erosion of attorney-client privilege in efforts by DOJ and the SEC (through policy described in its “Seaboard Memo”) to ‘give credit’ for ‘cooperation,’ including cooperating by means of waiving privilege.
FASB Meets With Legal Profession To Discuss Privilege, Other Issues in FAS 5 Amendments
FASB board member George Batavick told the 1,200 attendees on FASB’s Mid-Year Update webcast yesterday that FASB met with representatives of the legal profession last week to discuss certain matters relating to proposed amendments to FAS 5 on disclosures of loss contingencies. Batavick described it as a good discussion, adding the attorneys plan to provide FASB with “examples of loss contingencies, how they ended up on the balance sheet, what the delays were.”
FASB Director Russ Golden added, “We recognize changes may need to be made relating to the ‘treaty’ between the American Bar Association (ABA) and the AICPA relating to ….[privileged information and] the audit process.”
Here’s some info about FASB’s proposal, Disclosure of Certain Loss Contingencies: an amendment of [FAS 5] and [FAS 141R], as described on FASB’s webcast yesterday:
- August 8 is the comment deadline on the proposal.
- Proposed disclosures for loss contingencies include: Description of nature and risk of loss, factors likely to affect outcome, and most likely outcome, Amount of claim, Detailed reconciliation of changes, and disclosure of loss contingency if severe and expected to occur in one year. Golden said he expects the proposal to be ‘extremely controversial.”
- A ‘prejudicial exception’ is included in the proposal, said Golden, to address concerns expressed by companies that such disclosures would be ‘prejudicial’ in impacting the ability of those companies to defend themselves in certain lawsuits. Golden explained the proposed ‘prejudicial exception’: “In the event the case is so unique, so significant, a company is unable to describe the nature of the risk and amount of claim without giving away … information, the company would not have to disclose that information.” However, he added there are those who believe the proposed prejudicial exception would not be in the best interests of financial reporting.
- FASB plans to hold a roundtable and “perhaps do an academic study” to improve loss contingency disclosures, said Golden, “with hopes we can finalize [the standard] by the end of the year.”
As a reminder, our Do You Know Somebody offer holds till the end of June.
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