New York (Aug. 21, 2002) -- Liability for auditors will only increase in the wake of the accounting scandals and new reform legislation, and accounting firms need to act now to decrease their exposure, according to veteran professional liability attorney Dan Goldwasser.
An auditing practice is "fraught with liability dangers," Goldwasser told attendees at the New York State Society of CPAs’ "Future of SEC Practice After Enron" conference. And he warned that the liability potential is increasing as investors rack up huge stock market losses and turn to someone to blame.
While in the past, audit firms generally weathered jury trials well because CPAs were viewed as trustworthy and honest, that’s no longer the case, Goldwasser said. "The tide has turned, and CPAs are viewed as ready to sell their souls in an audit situation."
Goldwasser advised firms to really think out their document retention policies, implement them, and clean up any possible red flags in their audit files. He added that firms should review all of their files for substantive compliance and make sure the audit work was properly done.
"If it wasn’t, do it now and document it…and when you find a material error – deal with it. Don’t sweep it under the rug," he warned.
Goldwasser added that firms should drop untrustworthy clients now, firm up their insurance coverage, put together a damage control team (just in case) and be wary of all new engagements "You don’t want to take on someone else’s problem," Goldwasser said.
-- Tracey Miller-Segarra
