Accounting for the Future

Many industry officials worry as much about the impact of regulatory crackdowns on auditors as they do about liability claims, they said.

As a member of Congress in the mid-1990s, Christopher Cox, now the SEC chairman, championed a measure that narrowed the ability of investors to sue in securities class-action cases. Among his advisers was lawyer Michael J. Halloran, a lawyer who joined the SEC staff last year as deputy chief of staff and counselor to Cox.

The agency is the linchpin in the audit firms' effort because they think a Democratic Congress is unlikely to carve out special exemptions for the accounting industry, which has profited handsomely by charging higher audit fees for intense reviews of corporate books.

Cox said that the agency was not considering "any specific proposal" but that staff members were conducting at all times "intellectual research and development." He added that the SEC is concerned about limited competition in the industry but said that the agency will punish wrongdoing wherever it occurs.

Big-ticket lawsuits have captured the concern of broader deregulatory forces. In a December report, a panel created with the blessing of Treasury Secretary Henry M. Paulson Jr. concluded that criminal indictments of companies should be a "last resort," in light of the Andersen experience. The Committee on Capital Markets Regulation noted that European Union officials are considering liability caps and urged U.S. authorities to do the same. The chief executives of two of the Big Four accounting firms, Samuel A. DiPiazza Jr. of PricewaterhouseCoopers and William Parrett of Deloitte, served on the panel.

Next week, Treasury officials plan to host a day-long roundtable at Georgetown University where auditor liability will again be on the agenda. On Wednesday, the U.S. Chamber of Commerce will issue its own report on the state of regulation. The chamber report is expected to call for liability changes for accounting firms, according to people who have been briefed on its contents. Wednesday will be the fifth anniversary of the Andersen indictment related to its work for Enron. The investigation and ultimate indictment induced clients to flee and pushed the 89-year-old audit firm out of business.

The campaign for relief comes even as the number of lawsuits against auditors has declined since 2002. In 2005, only nine cases cited accounting firms. In recent memory, only one big firm, Laventhal & Horwath, sank because of legal liability. Laventhal was burdened with court cases in the late 1980s over its work for clients during the savings-and-loan crisis.

Most of the time, legal experts say, it is difficult for investors to sue audit firms because the companies that hire them have primary responsibility for their own financial reports. Over the years, courts and Congress generally have forced investors to prove that auditors took part in fraudulent conduct in order to prevail in court.

For the vast majority of accounting-firm partners, officials who did not engage in misconduct generally are protected from having their personal assets seized. Big firm partners earn well into the six figures, if not more, and typically receive pensions of about $300,000 a year for life after they retire.

But accounting firms say that the current law isn't enough to insulate themselves from disaster.

"The issue is not routine litigation but the multibillion-dollar case that could cause a firm to close its doors," said Robert J. Kueppers, deputy chief executive of Deloitte, of the auditor liability discussion, which he said is still in early stages. "We just don't want to be put out of business."