The American Bar Association adopted a resolution this week asking that the SEC, PCAOB, AICPA and other relevant organizations clarify how the attorney-client privilege will be preserved during the audit process. The ABA had established a Task Force to consider the issue. The Report of the Task Force is available here. The existing Statement of Policy on how attorneys respond to auditors is 30 years old.
Not surprisingly, the issue of privilege comes up in connection with contingent liability issues such as litigation (FAS 5) and environmental (FAS 143) reserves. As auditors attempt to determine whether appropriate reserves have been established, providing documents covered by the attorney-client privilege raises the possibility of waiver of the privilege. Sometimes, those documents may even make it into the audit workpapers. Legal determinations are often crucial to the proper accounting for issues such as whether environmental remediation is required and what a company's legal exposure is in a particular lawsuit or group of lawsuits.
See full Article.
Also see ABA Report, in pdf format.
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