Just hours after losing his heavyweight crown to crafty Gene Tunney, Jack Dempsey came home to find his wife waiting for him at the door.
"What happened?" she impatiently asked the now ex-champ.
Dempsey shrugged his enormous shoulders and sheepishly replied, "Honey, I forgot to duck."
While ducking -- along with bobbing and weaving -- may be key techniques to pugilistic success and, of course, survival, in the auditing profession, capping liability as a defensive maneuver has become the subject of a highly charged debate.
The practice of placing a cap on auditor liability as a hedge against the financial and litigious backlash of an accounting scandal is obviously not new, but nevertheless it has been rapidly gaining traction.
According to reports, roughly 100 publicly traded issuers now have agreements with their auditing firms -- capping the firm's liability and responsibility should anything go wrong with the client's books.
In essence, such an agreement limits an issuer's right to file suit against its auditor. Instead, the company must pursue alternative strategies to settle disputes, such as arbitration and/or mediation.
Opponents of the auditor cap, as you may imagine, opine that such liability restrictions would not serve as a motivator for an auditor to perform a more thorough audit.
Proponents (read: Big Four firms) point out that the caps don't limit shareholders from filing a lawsuit, and establish more formal processes to quickly resolve disputes between an auditor and client.
Which leads us to a related development with regard to audit quality.
Last week, Deloitte Touche Tohmatsu chief executive William G. Parrett spoke to some 250 senior partners at the firm's annual world meeting and offered up a pair of regulatory improvements improve the auditing process.
The first was to mandate that companies publicly state their reasons for changing an auditor -- which is rarely disclosed in any filing beyond stating that there were "disagreements" -- and the other, making it a crime to lie to an auditor.
I doubt you'd get much opposition on the merits of either proposal. They're basically common sense.
However, allow me to offer some unsolicited comment.
It's not often I'm sympathetic to all parties about such a partisan subject.
With regard to capping auditor liability, I'm not convinced it would encourage accounting firms to perform less-than-diligent audits, and it most likely would limit protracted litigation.
Conversely, an audit cap should not be viewed by audit firms as an escape route in the event of an Enron-like implosion, extricating them from blame.
Learning to duck may be an essential skill in a boxing ring, but in the arena of auditing it would be viewed quite differently.
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