November 30, 2005
Caps Off to the Auditors
The Wall Street Journal reported that Sun Microsystems has disclosed a very intriguing "auditing liability cap" arrangement with Ernst & Young. Effectively this means that if Sun reports gross mistatements in its financials, it can't turn around and sue the heck out of its auditors when investors dump the stock upon discovery of the errors. Jack Ciesielski makes a great point in his blog that this may shift the onus back to the corporation to provide better results in the first place instead of depending on the auditors to sniff out problems. Watching investors' reactions to this kind of arrangement in the future should give an idea of whether it will turn out to be better for the financial community.
Posted by Michelle Smith on November 30, 2005 08:40 PM
Comments
There now appears to be a growing backlash from regulators and investors who are trying to stop the big banks from agreeing to these caps. For see: http://www.soxfirst.com/50226711/liability_caps_the_backlash_from_regulators.php
Posted by: soxwatch at December 12, 2005 10:50 AM