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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (53218)	2/9/2006 1:28:40 PM
From: shades	Respond to of 110194

Fincl Regulators Warn Of Unsafe Auditor Liability Limits . By John Connor Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--Federal bank, thrift and credit union regulators warned financial institutions against the unsafe and unsound use of liability limitation provisions in external audit engagement letters. In an interagency advisory published Thursday in the Federal Register, the agencies said they've noticed an increase in the types and frequency of provisions in financial institutions' external audit engagement letters that limit the auditors' liability. They said such limits may weaken the auditors' objectivity, impartiality, and performance. "The inclusion of such provisions in financial institutions' external audit engagement letters may reduce the reliability of audits and therefore raises safety and soundness concerns," the agencies said. The agencies in question are the Federal Reserve System, Federal Deposit Insurance Corp., National Credit Union Administration, Office of the Comptroller of the Currency, and Office of Thrift Supervision. The latter two agencies are within the Treasury Department. The advisory informs financial institutions' boards of directors, audit committees, and management that they should not enter into agreements that incorporate unsafe and unsound external auditor limitation of liability provisions with respect to engagements for financial statement audits, audits of internal controls over financial reporting, and attestations on management's assessment of internal controls over financial reporting. The advisory is effective for engagement letters executed on or after Feb. 9, 2006. The advisory said the types of liability limits at issue take many forms but generally can be categorized as an agreement by a financial institution client of an external auditor to: Indemnify the auditor against claims made by third parties; hold harmless or release the auditor from liability for claims or potential claims that might be asserted by the client financial institution; or limit the remedies available to the client financial institution. The agencies published a proposed advisory last spring and asked for comments. They said Thursday that "most financial institutions and industry groups supported the proposed advisory and commended the agencies' efforts" and that "most of the letters from external auditors opposed the proposal." Due in part to extensive comments regarding client agreements not to seek punitive damages from their auditors, the agencies said they decided to take this issue under advisement. "Accordingly, at this time, provisions that waive the right of financial institutions to seek punitive damages from their external auditors are not treated as unsafe and unsound under the advisory," the agencies said. "Nevertheless, the agencies have concluded that agreements by financial institutions to indemnify their auditors for third party punitive damage awards are deemed unsafe and unsound," the agencies said. They also said that "to enhance transparency and market discipline, public financial institutions that agree to waive claims for punitive damages against their external auditors may want to disclose annually the nature of these arrangements in their proxy statements or other public reports." -By John Connor, Dow Jones Newswires; 202-862-9273; John.Connor@dowjones.com