While securities fraud lawsuits involving auditors are said to be relatively few in number as a percentage of total new filings, auditors often come to be added as defendants in highprofile cases. In the past few years, for example, auditors have been named as parties in the four proceedings with the largest total dollar value settlements to date -- Enron, WorldCom, Cendant, and AOL Time Warner -- and in several other well-known actions including Global Crossing, Tyco and Parmalat. With the majority of all cases alleging accounting irregularities and over 90% of last year’s filings reportedly containing alleged misrepresentations in financial documents, suits against auditors are never far off.
This article reviews first the role of the auditor and reminds counsel of the benefits of weaving into each case the theme that the auditor does not prepare a company’s financial statements; rather, the auditor opines on the fair presentation of management’s financial representations based on the auditor’s testing those representations. This article then surveys three areas of law germane in suits against auditors: (1) scienter requirements with respect to auditors; (2) the scope of primary liability and “scheme” liability with respect to auditors; and (3) “one firm” theories asserted against international audit firms.