TheCorporateCounsel.net

February 13, 2006

Financial Institutions Get Interagency Advisory re: Limiting Auditor Liability

On Thursday, a final interagency advisory was collectively issued – by the Treasury Department, Fed Reserve, FDIC, OTS, OCC and NCUA – to inform financial institutions’ boards and senior managers that they should not execute agreements that incorporate unsafe and unsound limitation of liability provisions in their engagements with independent auditors, including:

– The final advisory applies to all audits of financial institutions, regardless of their size, whether they are public or not, and whether the audits are required or voluntary.

– Limitation of liability provisions may weaken an external auditor’s objectivity, impartiality and performance and, thus, reduce the regulatory agencies’ ability to rely on the external audit.

– Limitation of liability provisions may not be consistent with the auditor independence standards of the SEC, PCAOB, and AICPA.

– The inclusion of limitation of liability provisions in external audit engagement letters and other agreements that are inconsistent with the final advisory will generally be considered an unsafe and unsound practice.

Coincidentally, this advisory came out on the same day that the PCAOB Standing Advisory Group debated this topic. I missed the PCAOB’s meeting (and just don’t have the stamina to listen to the meeting’s audio archive after hosting so many webcasts myself over the past few weeks). If you listened, can you let me know if any interesting tidbits came out of it?

Perhaps Exxon Really Needs Stock Options

For a relatively unique view on the state of stock options – at least unique at this point in time – check out Floyd Norris’ column in Friday’s NY Times. Floyd does a great job of making his point that moving away from options and blindly granting restricted stock for well-established companies might be a mistake.

I also liked this quote: “The lesson here may be that while it is a good idea to keep executives from taking the money and running, it is also a good idea to assure they really care whether the stock rises.” The bottom line is that each company has its own circumstances to consider and all companies should not seek to move as a herd. Performance-based options are one of the many choices to go forward with, and given that most of Western Europe would rarely think of using anything else, it is probably time that US practices caught up.

Want to Know What Your House is Worth?

If you are sitting in a pile of snow like me and looking for a lighter moment, go to Zillow.com to review a scary amount of data about your home. It was freaky to see an aerial view of my house pop up instantly on the site – but this beta site also produced an error of over 400% regarding my property taxes. All in all, a solid reminder of just how little privacy we have left…