Chapter _20, Legal Liability

Chapter _20, Legal Liability - Financial Crisis for CPAs?...

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Financial Crisis for CPAs? In 1990, firms spent 7.7% of “A&A” revenues settling (and defending) lawsuits; In 1991, that had risen to 9.0%; In 1993, that had increased to 13% (per a 1994 article in The Economist ); What’s the obvious implication going forward?
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“The Liability Crisis in the US: Impact on the Accounting Profession” (Big Six Firms, 1992) “A small group of attorneys is reaping millions of dollars by bringing federal securities fraud claims (under SEC Rule 10b-5) against public companies whose only crime has been a fluctuation in their stock price. These attorneys use the threat of enormous legal costs, a lengthy and disruptive discovery process, protracted litigation, and damage to reputation to force large settlements.” Increased dominance of one single law firm as plaintiff’s class action counsel (59% after enactment of 1995 Litigation Reform Act and 83% in CA) especially against technology companies.
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Big Six Proposed Reforms (1992) Proportionate liability ” (instead of joint-and-several liability ”) – Q: What’s the distinction? Federal securities reform, especially related to Rule 10b-5 ; and Similar reforms at the individual state levels.
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AICPA President Barry Melancon on Liability Reforms “We have made a lot of progress, perhaps more than many would have expected five years, or even 18 months, ago. The momentum has clearly been in one direction: toward improvement. We should have a good chance to
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Chapter _20, Legal Liability - Financial Crisis for CPAs?...

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