Many CPA firms use engagement letters containing clauses that seek to minimize their exposure to legal liabilities for audits, reviews, compilations, and other professional services. In September 2006, the AICPA's Professional Ethics Executive Committee (PEEC) issued an exposure draft (ED) to interpret Rule 101 that updated a similar September 2005 exposure draft. In light of the comment letters and other evidence, the PEEC abandoned the exposure draft and, instead, issued Ethics Interpretation 501-8. This interpretation recognized that individual regulators have already adopted rules that restrict the use of certain clauses in audit or other attestation engagements. Mitigating risk through limited liability clauses is a complicated issue for US auditors. The AICPA's issuance of Ethics ...
Fearing catastrophic jury verdicts for malpractice, many professionals are increasingly using liability-limiting language -- particularly waivers of punitive damages and alternate dispute resolution agreements. The current trend of the law seems increasingly toward allowing professionals to limit their liability through contractual agreement, but several regulatory agencies prohibit their use in certain circumstances. When an accountant is performing ordinary commercial services, such as management consultancy, there is no special concern, and liability-limiting language ought to be routinely enforced. The auditor-client relationship is not a fiduciary one, and the client risks only economic harm, not physical injury or death. If an agreement between an accountant and client turns out t...
This article explores the competing interests between director authority and accountability within the doctrinal developments underpinning the arguments for and against director oversight liability. The historic losses suffered by companies entangled in the web of subprime mortgages, collateralized debt holdings, and the ensuing credit crisis have brought the role of corporate directors as risk managers under renewed public scrutiny. Directors' authority and their accountability to shareholders are two critical pieces to striking the appropriate balance among the roles, rights, and responsibilities of directors, officers, shareholders, and other corporate constituencies who operate within the corporate power puzzle. Numerous shareholder derivative suits brought in the wake of such losse...
As Unnever et al. put it, the recent wave of corporate wrongdoing has raised the issue of whether the public is concerned about the control of lawlessness in the business world. Levi and Dorn hold that some headline risk concepts are: incoherence or lack of clarity of legalisation; potential for opening up opportunities for illegal acts by market participants; and the extent to which legislation might or might not signal to exposed persons that opportunities exist. Hamdani and Klement challenge the conventional view concerning the deterrence value of corporate criminal liability, showing that harsh entity-level penalties might discourage monitoring for misconduct and undermine compliance incentives within professional firms.
SEC Commissioner Luis Aguilar, in a speech at the 2009 Independent Director Conference, said, "I've been very vocal about a number of changes the SEC should make and about the Congressional action needed to address gaps in the SEC authority, and the actions needed to provide the SEC with the teeth and resources it needs to aggressively fulfill its mission to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation." The legal landscape for directors is concerning on multiple levels as they face higher levels of liability resulting from the global financial crisis, increased stock-market volatility, activist shareholders, an emboldened plaintiffs' bar, active regulatory oversight and strict securities laws enforcement.
Companies should be diligent in examining the relationship of product liability claims and effective quality assurance programs. A review of the literature suggests there are many writings about the mechanics of a product liability case, but very little hard evidence to suggest that companies are saving money because of implemented quality initiatives. While liability in this arena is usually borne by an injury that is due to a defect in either design, manufacturing, or marketing materials, suits are generally filed under three broad categories: negligence, breach of warranty, or strict tort liability. Properly implemented quality assurance initiatives will serve a company by tracking all aspects of the operation, from design to packaging, in order to determine where waste and defects a...
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